Net realizable value - wikipedia Net realizable value This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. ( January 2017 ) Net realizable value ( NRV ) is a method of evaluating a fixed or current asset 's worth when held in inventory, in the field of accounting. NRV is part of the Generally Accepted Accounting Principles ( GAAP ) and International Financial Reporting Standards ( IFRS ) that apply to valuing inventory, so as to not overstate or understate the value of inventory goods. Net realizable value is generally equal to the selling price of the inventory goods less the selling costs ( completion and disposal ). Therefore, it is expected sales price less selling costs ( e.g. repair and disposal costs ). NRV prevents overstating or understating of an assets value. NRV is the price cap when using the Lower of Cost or Market Rule. Under IFRS, companies need to record the cost of their Ending Inventory at the lower of cost and NRV, to ensure that their inventory and income statement are not overstated ( under ASPE, companies record the lower of cost and market value ). For example, under IFRS, at a company 's year end, if an unfinished good that already cost $25 is expected to sell for $100 to a customer, but it will take an additional $20 to complete and $10 to advertise to the customer, its NRV will be $100 - $20 - $10 = $70. In this year 's income statement, since the cost of the good ( $25 ) is less than its NRV ( $70 ), the cost of the good will get recorded as the cost of inventory. In next year 's income statement after the good was sold, this company will record a revenue of $100, Cost of Goods Sold of $25, and Cost of Completion and Disposal of $20 + $10 = $30. This leads to a profit of $100 - $25 - $30 = $45 on this transaction. IFRS Expected Selling Price 100 Initial Cost 25 Selling Expenses ( completion expenses and advertising expenses ) 30 NRV ( Selling Price - Selling Expenses ) 70 Profit ( Selling Price - Initial Cost - Selling Expenses ) 45 Suppose we changed the example so that it costs $60 to advertise to the customer. Now the good 's NRV will be $100 - $20 - $60 = $20. In this year 's income statement, since the NRV ( $20 ) is less than the cost of the good ( $25 ), the NRV will get recorded as the Cost of Ending Inventory. To do so, an inventory write down of $25 - $20 = $5 is done, and hence a decrease of $5 in this year 's income statement. In the next year 's income statement after the good was sold, this company will record a revenue of $100, Cost of Goods Sold of $20, and Cost of Completion and Disposal of $20 + $60 = $80. This leads to the company breaking even on this transaction ( $100 - $20 - $80 = $0 ). IFRS Expected Selling Price 100 Initial Cost 25 Selling Expenses ( completion expenses and advertising expenses ) 80 NRV ( Selling Price - Selling Expenses ) 20 Profit ( Selling Price - Initial Cost - Selling Expenses ) 0 Inventory can be valued at either its historical cost or its market value. Because the market value of an inventory is not always available, NRV is sometimes used as a substitute for this value. References ^ Jump up to : `` Net Realizable Value ''. Credo Literati. Jump up ^ `` Net Realizable Value ''. Credo Literati. Retrieved from `` https://en.wikipedia.org/w/index.php?title=Net_realizable_value&oldid=763011050 '' Categories : United States Generally Accepted Accounting Principles Hidden categories : Articles needing additional references from January 2017 All articles needing additional references Talk About Wikipedia فارسی 日本 語 Edit links This page was last edited on 31 January 2017, at 22 : 00. About Wikipedia

Question: under ifrs what is the company’s year-end inventory balance
Answer: the lower of cost and NRV