Inventory net realizable value, or NRV, estimates the ordinary-course selling price and subtracts reasonably predictable costs of completion, disposal, and transportation. It is a net recovery estimate for a stated inventory population and date. It is not list price, gross cash receipts, replacement cost, or automatically fair value.
Start with the item or category, condition, channel, and expected sale date. Support the selling price with recent transactions, firm orders, market evidence, or another stated source. Then identify unfinished work, disposal activity, transport, expected discounts, and other inputs required by the applicable definition. Keep source date, estimate owner, sensitivity, subsequent sales, and review trigger beside each input.
ASC 330-10-35-1A routes subsequent measurement by cost method. Paragraph 35-1B applies direct lower-of-cost-and-NRV measurement to inventory outside LIFO and the retail method. NRV also supplies the ceiling and helps determine the floor in the retained market path for LIFO and retail-method inventory.
A correct subtraction cannot validate unsupported estimates. Challenge stale prices, inconsistent units, omitted completion work, unusual channels, and costs assigned to the wrong population. Record uncertainty instead of forcing one precise amount from weak evidence.
The Cedar measurement example builds NRV before routing the population. Then complete the independent Northstar measurement review.
Put the concept to work
Understand this concept
- Explain inventory NRV as an ordinary-course net recovery estimate and distinguish it from replacement cost, fair value, list price, and gross cash receipts.
Analyze this concept
- Build and challenge an item- or category-level NRV schedule using selling-price, condition, completion, transportation, selling-cost, date, and subsequent-event evidence.
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Build on these ideas
- Accounting estimate — Understand
To understand this concept: Required. NRV depends on supported future selling and completion assumptions.
- Inventory net realizable value — Understand
To analyze this concept: Required. Evidence review applies the estimate definition.
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Use this idea next
- Inventory net realizable value — Analyze
Required level here: understand. Required. Evidence review applies the estimate definition.
- Lower of cost and net realizable value — Understand
Required level here: understand. Required. The test compares cost with a supported NRV estimate.
- Lower of cost or market — Understand
Required level here: understand. Required. NRV supplies the market ceiling and helps determine the floor.