What is net realisable value?
NRV answers the question: how much cash will we actually get from this item once we've finished and sold it? It's a key test for inventory and, in practice, for receivables too.
Formula
NRV = Estimated selling price − Costs to complete − Costs to sell
Inventory: lower of cost and NRV
Under IAS 2 Inventories, inventory must be measured at the lower of cost and NRV. If NRV falls below cost, the inventory is written down and the loss recorded immediately. See [accounting for inventory obsolescence](/glossary/accounting-for-inventory-obsolescence).
Example
A furniture maker has 10 unfinished tables that cost $300 each. They will cost $50 each to finish and $30 each to deliver, and will sell for $340.
- NRV = 340 − 50 − 30 = $260
- Cost = $300
- Write-down = (300 − 260) × 10 = $400
Receivables
[Accounts receivable](/glossary/accounts-receivable) are effectively shown at NRV: the gross amount less an [allowance for doubtful accounts](/glossary/allowance-for-doubtful-accounts).
When NRV falls
- Damage or obsolescence
- Falling market prices
- Rising completion or selling costs