Carrying amount definition
/What is the Carrying Amount of an Asset?
The carrying amount is the recorded cost of an asset, net of any accumulated depreciation or accumulated impairment losses. The term also refers to the recorded amount of a liability. The carrying amount of an asset appears in the reporting entity’s balance sheet.
Carrying Amount vs. Market Value
The carrying amount of an asset may not be the same as its current market value. The market value of an asset is based on supply and demand, while the carrying amount is a simple calculation based on the gradual depreciation charged against an asset. This can result in a substantial disparity between the two values. Here are the main differences between the two concepts:
Basis. The carrying amount of an asset is based on its purchase cost less any subsequent depreciation and impairment charges, while market value is based on market dynamics.
Volatility. The carrying amount of an asset tends to be stable, while its market value can be quite volatile, depending on market conditions.
Usage. An asset’s carrying amount is used in financial reporting, while market value is used to decide whether to hold or acquire an asset.
Carrying Amount of a Bond Payable
The carrying amount concept also applies to bonds payable, where the carrying amount is the initial recorded liability for bonds payable, minus any discount on bonds payable or plus any premium on bonds payable. Thus, the carrying amount will gradually change until the maturity date of the bond.
Terms Similar to Carrying Amount
Carrying amount is also called book value.
Carrying Amount FAQs
How is the carrying amount of liabilities measured?
The carrying amount of a liability generally equals its initial recognized amount, adjusted for repayments, accrued interest, amortization of premiums or discounts, and other required remeasurements. Current liabilities usually reflect the expected settlement amount, while long-term liabilities may be measured at amortized cost or present value.
How are deferred tax assets and liabilities reflected in carrying amounts?
Deferred tax assets and liabilities arise from differences between an asset’s or liability’s financial statement carrying amount and its tax basis. These temporary differences are measured using enacted tax rates expected at reversal. Deferred tax balances are reported separately and do not normally change the underlying item’s carrying amount.