In applying the lower of cost and net realizable value (NRV) to inventory valuation, NRV is defined as 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.

Question

Quizplus · Accepted Answer

This is the correct definition of net realizable value (NRV) in the context of inventory valuation. It reflects the amount of cash that a company expects to receive from the sale of its inventory, net of any additional costs that must be incurred to make the sale. Under the lower of cost and NRV method, inventory is valued at the lower of its cost or its net realizable value, whichever is lower. This approach provides a conservative estimate of the value of inventory on a company's balance sheet, helping to ensure that it is not overstated.

In Applying the Lower of Cost and Net Realizable Value