NRV is defined as what?

NRV is defined as what?

• A. Estimated selling price less costs to complete and costs to sell
• B. Estimated selling price less only costs to sell
• C. Estimated selling price less only costs to complete
• D. Estimated selling price less costs to complete and costs to sell

Answer: (D)

Net realisable value is the amount the entity expects to realise from selling the inventory in ordinary course, after deducting the costs needed to complete the item for sale and the costs to make the sale. This means you subtract both finishing (costs to complete) and selling (costs to sell) expenses from the estimated selling price. That’s why the correct approach is to subtract both types of costs. If you left out either the completion costs or the selling costs, you’d overstate NRV. For example, if the estimated selling price is 100, costs to complete are 15 and costs to sell are 5, NRV is 80. This principle is used when comparing cost with NRV under the lower of cost and NRV rule for inventories.

Net realisable value is the amount the entity expects to realise from selling the inventory in ordinary course, after deducting the costs needed to complete the item for sale and the costs to make the sale. This means you subtract both finishing (costs to complete) and selling (costs to sell) expenses from the estimated selling price.

That’s why the correct approach is to subtract both types of costs. If you left out either the completion costs or the selling costs, you’d overstate NRV. For example, if the estimated selling price is 100, costs to complete are 15 and costs to sell are 5, NRV is 80. This principle is used when comparing cost with NRV under the lower of cost and NRV rule for inventories.