What Is Net Realizable Value?

Net realisable value refers to the net value of daily sales based on the estimated selling price less further processing costs and estimated sales expenses and related taxes. Under the measurement of net realizable value, assets are measured at the amount of cash or cash equivalents that they can receive from normal external sales, after deducting the estimated costs to be incurred when the asset is completed, the estimated sales expenses, and related taxes. ^[1]

Net realizable value

Net realizable value of inventory = Estimated selling price of inventory-Estimated cost to completion-Estimated selling expenses-Related taxes

According to the definition of the standard, net realizable value (NRV) refers to the estimated selling price of inventory in the normal production and operation process minus the estimated cost to be completed to completion, and the estimated

Determination of estimated selling price in net realizable value:

1.To execute a sales contract or

Example 1: Company A's final raw materials

1. Factors that enterprises should consider when determining the net realizable value of inventory:

(1) Conclusive evidence of the net realizable value of inventories; the net realizable value cannot be calculated at will to avoid the occurrence of profit manipulation.

(2) The purpose of holding inventory; there are two purposes: one is to continue production, and the other is to sell directly to the outside world.

(3) The impact of events after the balance sheet date.

Considering this factor, that is, the analysis and judgment cannot be made based on the current situation only, but also the situation in the future. For example, on December 31, 2009, a net realizable value was calculated for a batch of inventory products. Based on the current market price analysis, the net realizable value may be higher, but there is strong evidence that in the future, due to the introduction of new national policies, product prices It will be greatly reduced and there will be signs of impairment.

2. Determination of inventory realizable net value under different circumstances

(1) Holding the inventory of goods directly used for sale, such as finished products and goods, which are not stipulated in the sales contract.

Net realizable value = estimated selling price-estimated selling expenses and related taxes. For example, if a company holds a group of goods without a sales contract, the market price is 1 million yuan. The sales expenses and taxes that will occur in further sales are 80,000 yuan. The net realizable value is 100-8 = 92 (ten thousand yuan). If the book cost is 950,000 yuan, a provision for inventory depreciation of 30,000 yuan is made.

(2) There is no sales contract for holding materials etc. for sale.

Net realisable value = market price-estimated selling expenses and related taxes

(3) Raw materials held for production (emphasis).

Whether materials held for the production of a product are to be provided for should be combined with the net realisable value of the product. When the net realizable value of the product is lower than the cost, the material should be provided for impairment; when the net realizable value of the product is higher than the cost, even if the market price of the material is lower than the cost of the material, no provision is required.

Net realisable value = estimated selling price of the finished product produced by the material-cost of further processing-estimated selling expenses and related taxes

(4) Inventories held for execution of sales contracts or labor contracts (emphasis)

Net realisable value = contract price-estimated selling expenses and related taxes If an enterprise holds more than one quantity of the same inventory in a sales contract or labor contract, its net realisable value shall be determined separately and correspondingly The cost is compared to determine the amount of withdrawal or reversal of the inventory depreciation reserve. The net realizable value of the inventory exceeding the contract part shall be calculated on the basis of the general sales price.