📦 What is NRV?
NRV is the amount a company expects to receive from selling an item, after deducting any costs needed to finish and sell it.
Think of it like this:
Imagine you’re selling a pizza that’s half‑baked. The price you can get from a customer is the pizza’s selling price, but you still need to finish baking and deliver it. NRV is the selling price minus the cost of finishing and delivering.
Why use NRV?
• Keeps inventory values realistic – you don’t overstate what you can actually sell.
• Helps detect when items are likely to lose value (e.g., due to damage or obsolescence).
• Is required by many accounting standards for certain types of inventory.
\$ NRV = \text{Selling Price} - \text{Cost to Complete and Sell} \$
A toy store buys 100 action figures for £5 each.
The figures are currently in a damaged state, so the store can only sell them for £4 each, and it costs £0.50 per figure to repair and package them for sale.
Step 1: Selling price per figure – £4
Step 2: Cost to complete and sell per figure – £0.50
Step 3: NRV per figure – £4 – £0.50 = £3.50
Step 4: Compare with cost (£5) – NRV (£3.50) < Cost (£5) → write‑down needed.
Write‑down amount per figure – £5 – £3.50 = £1.50
Total write‑down for 100 figures – 100 × £1.50 = £150
| Item | Cost (£) | Selling Price (£) | Cost to Complete & Sell (£) | NRV (£) | Write‑Down (£) |
|---|---|---|---|---|---|
| Action Figures | 5.00 | 4.00 | 0.50 | 3.50 | 1.50 |
Exam Tip 📝
Quick Checkpoint ✔️
If an item’s NRV is higher than its cost, what happens?
Answer: No write‑down is needed; the inventory is kept at its original cost.