The term carrying amount is often used in place of book value. The carrying amount refers to the amounts that the company has on its books for an asset or a liability. For example, the carrying amount of a company's truck is the cost of the truck minus the accumulated depreciation on the truck.

The carrying amount of a company's bonds payable is the balance in the company's general ledger account Bonds Payable minus the amount in Discount on Bonds Payable or plus the amount in its account Premium on Bonds Payable and minus the unamortized bond issue cost associated with the bond.

The carrying amount will be different from the fair market value. For example, the company might depreciate the truck using the straight-line method, but the market value of the truck declines more rapidly in the first year and less rapidly in the later years of the truck's useful life. The market value of the bonds is affected by the daily changes in the market interest rates, whereas the carrying amount is unaffected by the day-to-day changes in the market interest rates.

View Our Course Outline