Inventory Valuation | Lower of Cost or NRV | BBA, B.com, CA, ACCA, MBA, M.com #inventory #learn24_7
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Inventory valuation using the lower
Inventory valuation using the lower of cost or net realizable value (NRV) method is a conservative approach to valuing inventory. It requires a company to compare the
cost of each inventory item with its estimated selling price less any costs necessary to make the sale (i.e., net realizable value). The lower of the two values is
then used to determine the inventory's value on the balance sheet.
Here's how the lower of cost or NRV method works:
Cost: The cost of inventory is determined using one of the acceptable valuation methods such as FIFO, LIFO, or weighted average cost. This cost reflects the original
purchase cost or production cost of the inventory items.
Net Realizable Value (NRV): NRV is the estimated selling price of the inventory item less any costs necessary to complete the sale, such as marketing expenses,
distribution costs, or any additional processing or customization costs. It represents the amount the company expects to receive from selling the inventory.
The lower of cost or NRV method is used to ensure that inventory is not overstated on the balance sheet. It recognizes a conservative estimate of the inventory's
value, taking into account any potential declines in selling prices, damage, obsolescence, or other factors that may affect its realizable value.
It's important to note that the lower of cost or NRV method is usually applied on an item-by-item basis rather than on a category or group level. This allows for more
accurate valuation, particularly when different inventory items have varying cost structures or market conditions.
Companies are required to disclose the inventory valuation method used in their financial statements to provide transparency and allow users of the financial
statements to understand how inventory is valued.
BBA, B.com, CA, ACCA, MBA, M.com, MS Accounting
#bba #bcom #ca #acca #mba #mcom #accounting #lectures #learn24_7 #financialaccounting #managerialaccounting #completelecture #onlinelectures
#advancedaccounting #inventory #inventories #introductiontoinventory #inventoryrecording #inventorysystem #inventoryrecording #profitdetermination #inventoryvaluation
#perpetual #perpetualinventorysystem #periodic #periodicinventorysystem #inventorycost #fifo #fifomethod #fifoaccounting #lifo #lifomethod #lifoaccounting
#weightedaverage #weightedaveragemethod #valuationofinventory #nrv #netrealisablevalue #currentassets #stock #stockintrade #costofsale #costofgoodssold
#costaccounting #stockledgercard #storeledgercard #storeledgeraccount #inventorycostiungmethod #modernaccounting #mohmmadhanif #mukherjee #specificidentificationmethod
#cost #nrv #lowerofcostornrv
cost of each inventory item with its estimated selling price less any costs necessary to make the sale (i.e., net realizable value). The lower of the two values is
then used to determine the inventory's value on the balance sheet.
Here's how the lower of cost or NRV method works:
Cost: The cost of inventory is determined using one of the acceptable valuation methods such as FIFO, LIFO, or weighted average cost. This cost reflects the original
purchase cost or production cost of the inventory items.
Net Realizable Value (NRV): NRV is the estimated selling price of the inventory item less any costs necessary to complete the sale, such as marketing expenses,
distribution costs, or any additional processing or customization costs. It represents the amount the company expects to receive from selling the inventory.
The lower of cost or NRV method is used to ensure that inventory is not overstated on the balance sheet. It recognizes a conservative estimate of the inventory's
value, taking into account any potential declines in selling prices, damage, obsolescence, or other factors that may affect its realizable value.
It's important to note that the lower of cost or NRV method is usually applied on an item-by-item basis rather than on a category or group level. This allows for more
accurate valuation, particularly when different inventory items have varying cost structures or market conditions.
Companies are required to disclose the inventory valuation method used in their financial statements to provide transparency and allow users of the financial
statements to understand how inventory is valued.
BBA, B.com, CA, ACCA, MBA, M.com, MS Accounting
#bba #bcom #ca #acca #mba #mcom #accounting #lectures #learn24_7 #financialaccounting #managerialaccounting #completelecture #onlinelectures
#advancedaccounting #inventory #inventories #introductiontoinventory #inventoryrecording #inventorysystem #inventoryrecording #profitdetermination #inventoryvaluation
#perpetual #perpetualinventorysystem #periodic #periodicinventorysystem #inventorycost #fifo #fifomethod #fifoaccounting #lifo #lifomethod #lifoaccounting
#weightedaverage #weightedaveragemethod #valuationofinventory #nrv #netrealisablevalue #currentassets #stock #stockintrade #costofsale #costofgoodssold
#costaccounting #stockledgercard #storeledgercard #storeledgeraccount #inventorycostiungmethod #modernaccounting #mohmmadhanif #mukherjee #specificidentificationmethod
#cost #nrv #lowerofcostornrv
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