The estimated selling price of an asset in the ordinary course of business, minus the estimated costs of completion, marketing, and disposal.
Net Realizable Value (NRV) is primarily used for inventory valuation under the lower of cost or NRV rule (Ind AS 2, IAS 2). If inventory's NRV falls below its cost, a write-down is required — this applies the conservatism principle, ensuring assets are not overstated. NRV considers the specific circumstances of the inventory: damaged goods, obsolete items, declining market prices, or excess stock. For accounts receivable, NRV is the amount expected to be collected (face value minus allowance for doubtful accounts). NRV assessment requires management judgment about future selling prices, completion costs, and market conditions. It must be reassessed at each reporting date.
A electronics retailer has 500 phones in stock at cost ₹15,000 each. A newer model has launched, and these can now only sell for ₹12,000. Selling costs (packaging, shipping): ₹500/unit. NRV = ₹12,000 − ₹500 = ₹11,500. Since NRV (₹11,500) < Cost (₹15,000), inventory is written down to ₹11,500/unit. Write-down: 500 × ₹3,500 = ₹17,50,000 charged to P&L.
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At each balance sheet date (minimum annually, ideally quarterly or monthly). Also reassess when: market prices drop significantly, goods are damaged, products become obsolete, or there's a sudden demand decline. Any previous write-down should be reversed if NRV recovers (up to original cost only).
No. NRV is entity-specific — it considers the company's specific selling situation, costs, and circumstances. Fair value is market-based — what a knowledgeable buyer would pay in an arm's length transaction. NRV may be higher or lower than fair value depending on the company's unique costs and market access.
The process of ordering, storing, tracking, and controlling goods to ensure the right quantity is available at the right time while minimizing holding costs.
The direct costs attributable to the production or purchase of goods sold by a company during a specific period.
An inventory valuation method where goods purchased or manufactured first are sold or used first, meaning the oldest stock is consumed before newer stock.
An inventory valuation method that calculates the average cost per unit by dividing total cost of goods available by total units available, updating with each new purchase.
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