How to calculate the carrying value of a bond the motley. The book value of bonds payable is also referred to as the carrying value of bonds payable. While book value per share is a good way to evaluate a stock, its more of an accounting based tool and doesnt necessarily reflect the true market value of a publicly traded company. Carrying value of bond how to calculate carrying value. How to determine the carrying value of bonds youtube. The face value of the bonds which is a credit balance in the account bonds pay. The carrying value of a bond is the combined total of its face value and any unamortized discounts or premiums. How to calculate carrying value of a bond with pictures. An assets book value is equal to its carrying value on the balance sheet, and companies calculate it netting the asset against its accumulated depreciation. The carrying value of a bond refers to its face value, plus any unamortized premiums or minus any unamortized discounts.
What is book value per share and how can it help you in. The formula for interest revenue accrued on a bond. That being said, you will need to know the coupon value of the bond, as well as its par value. In accounting, book value refers to the amounts contained in the companys general ledger accounts or books. Book value of debt definition, formula calcuation with. The book value of bonds payable consists of the following amounts, all of which are found in bondrelated liability accounts.
A discount from the face value of a bond occurs when investors want to earn a higher rate of interest than the rate paid by the bond, so they pay less than the face value of the bond. Book value of debt is accounting value of the debt which was recorded as per the historical data or amortization schedule of the debt, which will have less relevance at the time when the company is looking for merger or acquisition or looking for any other external investors for the company. The carrying value is also commonly referred to as the carrying amount or the book value of the bond. It is important to realize that the book value is not the same as the fair market value because of the accountants historical cost principle and matching principle.
The initial carrying value is the issue price of the bond. The book yield is a measure of a bonds recurring realized investment income that combines both the bonds coupon return plus its amortization. Accountants use this calculation to record on financial statements the profit or loss the company has sustained from issuing a bond at a premium or a discount. The carrying value of a bond refers to the net amount between the bond s face value plus any unamortized premiums or minus any amortized discounts. This video shows how to calculate the carrying value of a bond throughout the life of the bond. Accounting for bonds payable requires present value computations to determine the current worth of the future payments. The carrying value of a bond is the net difference between the face value and any unamortized portion of the premium or discount. Par value or face value p this is the actual money that is being borrowed by the lender or purchaser of bonds. Carrying value of a bond is also known as book value or carrying amount of bond and it is nothing but the sum total of the face value and unamortized premiums if any less unamortized discounts if any of a bond and this amount is usually projected on the issuing companys balance sheet. You can easily begin calculating accrued interest on a bond using a simple mathematical formula. As can be seen from the bond pricing formula, there are 4 factors that can affect the bond prices. We can quickly calculate a bonds carrying value with only a few pieces of.