Net Realizable Value (NRV) as IAS-2 in Bangla I How to Calculate Net Realizable Value (NRV)?
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Net Realizable Value (‘NRV’) is
Net Realizable Value (‘NRV’) is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale (IAS 2.6).
In other words, Inventories should be written down below their cost, if they are damaged, become obsolete or simply their selling prices have declined (IAS 2.28).
The Net Realizable Value (NRV) is an important measure in inventory accounting under the Generally Accepted Accounting Principles (GAAP) and the International Financing Reporting Standards (IFRS).
NRV is an important metric that is used in the Lower Cost or Market (LCM) method of accounting reporting.
Under the market method reporting approach, the company’s inventory must be reported on the balance sheet at a lower value than either the historical cost or the market value. If the market value of the inventory is unknown, the net realizable value can be used as an approximation of the market value.
The calculation of the NRV can be broken down into the following steps:
1.Determine the market value or expected selling price of an Asset.
2. Find all costs associated with the completion and the sale of an asset (cost of production, advertising, transportation).
3. Calculate the difference between the market value (expected selling price of an asset)and the costs associated with the completion and sale of an asset. It is a Net Realizable Value/NRV of an asset.
In other words, Inventories should be written down below their cost, if they are damaged, become obsolete or simply their selling prices have declined (IAS 2.28).
The Net Realizable Value (NRV) is an important measure in inventory accounting under the Generally Accepted Accounting Principles (GAAP) and the International Financing Reporting Standards (IFRS).
NRV is an important metric that is used in the Lower Cost or Market (LCM) method of accounting reporting.
Under the market method reporting approach, the company’s inventory must be reported on the balance sheet at a lower value than either the historical cost or the market value. If the market value of the inventory is unknown, the net realizable value can be used as an approximation of the market value.
The calculation of the NRV can be broken down into the following steps:
1.Determine the market value or expected selling price of an Asset.
2. Find all costs associated with the completion and the sale of an asset (cost of production, advertising, transportation).
3. Calculate the difference between the market value (expected selling price of an asset)and the costs associated with the completion and sale of an asset. It is a Net Realizable Value/NRV of an asset.
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