Glossary

What is Carrying Amount?

Definition of carrying amount

Carrying amount is the amount at which an asset, a liability or equity is recognised in the statement of financial position. It reflects the value reported in the financial statements after applying the relevant measurement and accounting requirements.

Explanation of carrying amount 

Carrying amount is the value assigned to an asset, liability or item of equity in an entity’s statement of financial position at a particular reporting date. It may differ from the original cost because of subsequent accounting adjustments, such as depreciation, amortisation, impairment, revaluation or changes in measurement.
For example, the carrying amount of a tangible fixed asset is often its cost less accumulated depreciation and any accumulated impairment losses. The carrying amount of a liability may change over time as obligations are settled, remeasured or accrue interest.
Under UK accounting standards, including FRS 102, and under IFRS, carrying amount is a fundamental measurement concept used throughout financial reporting. It provides the basis for assessing matters such as impairment, derecognition and the presentation of financial position.

Key characteristics of carrying amount 

Key characteristics of carrying amount include:

  • It is the amount recognised in the statement of financial position.
  • It applies to assets, liabilities and equity.
  • It may differ from an item’s original cost because of subsequent accounting adjustments.
  • It changes over time as accounting measurements are updated.
  • It is determined in accordance with the applicable accounting standards.

How carrying amount works 

  1. An asset, liability or equity item is initially recognised in the financial statements.
  2. The recognised amount is measured in accordance with the relevant accounting requirements.
  3. Subsequent adjustments, such as depreciation, amortisation, impairment or remeasurement, are recorded where applicable.
  4. The resulting figure is reported as the carrying amount in the statement of financial position.

Example of carrying amount in practice 

A UK company purchases machinery for £250,000. After several years, accumulated depreciation of £80,000 and an impairment loss of £20,000 have been recognised. The machinery’s carrying amount in the statement of financial position is £150,000.

Related terms 

  • Asset
  • Liability
  • Equity
  • Statement of financial position
  • Depreciation
  • Amortisation
  • Impairment loss
  • Recoverable amount

Common misconceptions about carrying amount 

  • Carrying amount is not always the same as an asset’s original purchase price.
  • It does not necessarily represent an item’s current market value.
  • Carrying amount applies to liabilities and equity as well as assets.

Questions about carrying amounts 

What is carrying amount in accounting?

Carrying amount is the amount at which an asset, liability or equity is recognised in the statement of financial position.

Is carrying amount the same as market value?

No. Carrying amount is determined under the applicable accounting standards and may differ from an item’s market value or fair value.

Why does the carrying amount of an asset change?

It may change because of depreciation, amortisation, impairment, revaluation or other measurement adjustments recognised under the relevant accounting framework.

Where is the carrying amount reported?

The carrying amount is reported in the statement of financial position as part of an entity’s recognised assets, liabilities or equity.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this glossary entry only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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