Net realizable value (NRV) is a measure of a fixed or current[1] 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.
NRV prevents overstating or understating of an assets value.
[1] NRV is the price cap when using the Lower of Cost or Market Rule.
[2] 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
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
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