Carrying Value Vs. Book Value

The carrying value, or book value, of an item is related to business accounting. Accountants record the value of items based on a variety of factors, including how much was spent for the item, when it was first purchased and how long the item has been used. Carrying value is found by combining how much the business originally paid for the item and the depreciation up until the current date. This value is the product of accounting and serves a financial purpose but is not related to the market value of the same item.

Carrying value and book value may be used by different organizations, but in the end they mean essentially the same thing: the current recorded value of an asset or company. The concept is called carrying value because the original value of the item is carried over from its original documentation and combined with losses to represent a new value carried in the business books. It is called book value as a reference to its origination in accounting based on business records instead of market analysis.

Assets are relatively easy to break down into a carrying value. First the account takes the value of the item when it was first bought and recorded. The original cost of the asset -- such as software, machinery or trucks -- is a good starting place, but it does not reflect an accurate current value. The asset has depreciated over time, slowly losing value due to age and wear. To create the carrying value, the accountant combines the original cost of the asset with the depreciation cost (carried over from a separate account).

The carrying value of a company is more complicated than the carrying value of a single asset. The accountant adds all the assets of the business together, then begins by subtracting all the intangible assets like goodwill and intellectual property. These are specific assets that do not have any physical worth and do not represent any type of tangible liquidity -- they are used as an accounting construct. Next the accountant subtracts all liabilities, including the company's debts that the value of the assets would have to cover. In certain businesses, the carrying value is often a negative number.

Market value is the current price the asset or company could be sold for on the open market. Ideally, this is the same as the carrying and book value, but this is not always true. For instance, an asset may quickly depreciate in value within the first couple years of its use according to the market, but it may only depreciate a small amount on the business books based on the depreciation method being used, leading to two different values.