Carrying value

Definition

Carrying value (or net book value) is the amount at which an asset sits on the balance sheet: original cost minus accumulated depreciation, amortisation or impairment.

In plain terms

It is the accounting value, not the price you would fetch on the open market. A fully depreciated machine can carry at zero yet still be worth selling.

Why it matters for your company

Lenders compare carrying value with realistic market value when assessing security — the gap drives the haircut. See fair value.

In practice

Picture a UK limited company that bought equipment some years ago. Each year's depreciation charge chips away at the figure sitting on the balance sheet, so the carrying value drifts steadily downward regardless of what is actually happening in the market for that kind of kit. If the equipment has been well maintained, or demand for second-hand versions has held up, the true resale value can sit well above what the books show.

The reverse also happens: a technology asset can lose real-world usefulness faster than its depreciation schedule assumes, leaving a carrying value that overstates what the company could actually realise if it needed to sell. Directors reviewing management accounts should treat the carrying value as a starting point for a conversation, not the final word on what an asset is worth today.

How lenders read it

When an asset is offered as part of a security discussion, a lender will rarely take the carrying value at face value. The accounting figure reflects historic cost and a depreciation policy chosen for accounting purposes, not a view on current marketability, condition, or how quickly the asset could be sold if needed. That is precisely the gap referenced under haircut.

A large or unexplained divergence between carrying value and an asset's likely realisable value tends to prompt closer questions — about maintenance history, obsolescence, or whether an impairment review is overdue. Companies that keep their fixed-asset register current and can speak to both figures confidently tend to have an easier conversation.