Glossary · Also called NRV
Net realisable value
The estimated selling price of inventory less the costs of getting it sold.
What it means
The estimated selling price of an asset in the ordinary course of business, less the estimated costs of completion and of making the sale.
Example
Goods costing RM1,000 now saleable for only RM800 after RM50 selling costs have an NRV of RM750.
Why it matters
Inventory is valued at the lower of cost and net realisable value, applying prudence so profit is not overstated.
In practice
Net realisable value (NRV) is used to value closing inventory. That figure affects both the income statement, through cost of sales, and the statement of financial position, where inventory is a current asset. The prudence concept requires inventory to be recorded at the lower of cost and net realisable value. This way expected losses are recognised at once, but expected profits are not anticipated. NRV is the estimated selling price less any costs still needed to complete and sell the goods.
Suppose goods cost RM3,000. Because they are damaged, they can now be sold for only RM2,600, and RM200 of repairs and delivery is still needed. NRV is RM2,400. That is below cost, so inventory is written down to RM2,400.
Compare NRV with cost. Cost is what the business paid to buy or make the goods. NRV is what it now expects to recover from selling them, after further costs.
If inventory valuation questions cost you marks, one of our teachers can practise the lower-of-cost-and-NRV comparison with you. Book a trial class.
Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 4.5 Valuation of inventory (page 15).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
Need net realisable value explained properly?
Tell us your child’s year and board on WhatsApp and we will suggest a first lesson. One-to-one and online, from RM75/hr.
One-hour paid trial · Same-day reply