carrying value

Examples of carrying value in the following topics:

• Limitations of the Balance Sheet

  • Depreciation affects the carrying value of an asset on the balance sheet.
  • The historical cost will equal the carrying value only if there has been no change recorded in the value of the asset since acquisition.
  • Therefore, the balance sheet does not show true value of assets.
  • However, similar internal spending cannot be booked, although it will be recognized by investors who compare a company's market value with its book value.
  • Different methods of depreciation affect the carrying value of an asset on balance sheets.

• Market Value vs. Book Value

  • Book value is the price paid for a particular asset, while market value is the price at which you could presently sell the same asset.
  • Market value is often used interchangeably with open market value, fair value, or fair market value.
  • In accounting, book value or carrying value is the value of an asset according to its balance sheet account balance.
  • In many cases, the carrying value of an asset and its market value will differ greatly.
  • If the asset is valued on the balance at market value, then its book value is equal to the market value.

• Return on Total Assets

  • Second, the total assets are based on the carrying value of the assets, not the market value.
  • If there is a large discrepancy between the carrying and market value of the assets, the ratio could provide misleading numbers.

• Claim to Income

  • Preferred stock may or may not have a fixed liquidation value (or par value) associated with it.
  • Preferred stock has a claim on liquidation proceeds of a stock corporation equal to its par (or liquidation) value, unless otherwise negotiated.
  • As company value increases based on market determinants, the value of equity held in this company also will increase.
  • In turn, should market forces decrease, the value of equity held will decrease as well, reflecting a loss on investment and, therefore, a decrease on the value of any claims to income for shareholders.
  • Preferred and common stock both carry rights of ownership, but represent different classes of equity ownership.

• Overview of Warrants

  • The market value of a warrant can be divided into two components:
  • Time value: Time value can be considered as the value of the continuing exposure to the movement in the underlying security that the warrant provides.
  • Time value declines as the expiration of the warrant gets closer.
  • This erosion of time value is called time decay.
  • Warrants may also carry liquidity risk, due to their specialized nature.

• Preferred Stock Rules and Rights

  • Preferred stock usually carries no voting rights, but may carry a dividend and may have priority over common stock in the payment of dividends and upon liquidation.
  • Preferred stock may or may not have a fixed liquidation value (or par value) associated with it.
  • Preferred stock has a claim on liquidation proceeds of a stock corporation equal to its par (or liquidation) value, unless otherwise negotiated.
  • The dividend is usually specified as a percentage of the par value, or as a fixed amount.
  • Preferred stock is a security ( a little more modern that this stock from the VOC or Dutch East India Company) that carries certain rights which designate it from common stock or debt.

• Dividend Preference

  • Preferred stock is a class of capital stock that carries certain features or rights not carried by common stock.
  • Unlike common stock, which has no set maximum or minimum dividend, the dividend return on preferred stock is usually stated at an amount per share or as a percentage of par value.
  • Common stock usually carries with it the right to vote on certain matters, such as electing the board of directors.
  • There is no fixed dividend paid out to common stock holders and so their returns are uncertain, contingent on earnings, company reinvestment, and efficiency of the market to value and sell stock.
  • Preferred stock usually carries no voting rights, but may carry a dividend and may have priority over common stock upon liquidation, and in the payment of dividends.

• Functions of Corporate Finance

  • This requires valuing projects and business functions.
  • A large element of finance is deciding how exactly to value a project.
  • Each option carries a certain cost that can be quantified.
  • If a company doesn't pay a dividend and instead chooses to reinvest the money, the value of the company will presumably increase, in turn increasing shareholder value.
  • The finance department determines which option maximizes shareholder value.

• Accounting for Preferred Stock

  • Preferred stock is a class of capital stock that carries certain features or rights not carried by common stock.
  • For par value preferred stock, the dividend is usually stated as a percentage of the par value, such as 8% of par value; occasionally, it is a specific dollar amount per share.
  • Most preferred stock has a par value.
  • Preferred stockholders receive the par value (or a larger stipulated liquidation value) per share before any assets are distributed to common stockholders.
  • The par value, authorized shares, issued shares, and outstanding shares is disclosed for each type of stock.

• Stocks

  • Stock is different from the property and the assets of a business which may fluctuate in quantity and value.
  • Given the total amount of money invested in the business, a share has a certain declared face value, commonly known as the par value of a share.
  • The par value is the de minimis (minimum) amount of money that a business may issue and sell shares for in many jurisdictions and it is the value represented as capital in the accounting of the business.
  • In other jurisdictions, however, shares may not have an associated par value at all.
  • As a unit of ownership, common stock typically carries voting rights that can be exercised in corporate decisions.