So I pretty much understand the following terms on their own, but when they are referred to all in one chapter (in this case, Intercorporate Investments) , I get confused and I’m not sure whether I am mixing up my understanding of each term. Could someone please indicate the differences or the similarities (if the terms are actually referring to the same thing) of the following? Also, it would be great if someone could explain how each displays on the balance sheet. Thanks in advance!
Carrying value is the value at which an asset or liability is CARRIED (presented) in the balance sheet, or simply in the company’s books. Hence, it is synonymous with book value. Of course, we often talk about and measure the book value of more than one balance sheet item.
Fair value is not an easy term to define in accounting, but think of it as the value for which an asset could be sold or a liability settled. Certain assets often have fair values which differ from the their book values. Land and buildings may often be sold for a price which exceeds their carrying amount/value.
The fair value of net assets is simply the sum of all fair values allocated to the company’s assets minus the fair value of all of its liabilities.