{"id":223140,"date":"2024-03-25T18:34:55","date_gmt":"2024-03-25T18:34:55","guid":{"rendered":"https:\/\/namso-gen.co\/blog\/what-is-net-realizable-value-with-example\/"},"modified":"2024-03-25T18:34:55","modified_gmt":"2024-03-25T18:34:55","slug":"what-is-net-realizable-value-with-example","status":"publish","type":"post","link":"https:\/\/namso-gen.co\/blog\/what-is-net-realizable-value-with-example\/","title":{"rendered":"What is net realizable value with example?"},"content":{"rendered":"

Net realizable value (NRV) is a financial term used in accounting that represents the estimated selling price of an asset minus any associated costs required to complete its sale. In simpler terms, it is the amount of money a company expects to receive from the sale of an asset after deducting any applicable discounts, allowances, or expenses. NRV is an important concept for businesses as it allows them to assess the value of their assets realistically, considering all relevant factors that may affect the final selling price.<\/p>\n

**What is net realizable value with an example?**<\/p>\n

To better understand the concept of net realizable value, let’s consider an example. Suppose Company XYZ is a retailer that sells electronic gadgets, including smartphones. At the end of the year, the company has 100 smartphones in its inventory. The cost price of each smartphone is $300, but due to market fluctuations and the release of newer models, the estimated selling price has decreased to $250 per unit.<\/p>\n

In addition to the decrease in selling price, the company foresees that it would incur various costs to sell these smartphones, such as transportation, marketing, and packaging expenses. These costs amount to $20 per unit. By applying the concept of net realizable value, the company can calculate the NRV of its smartphone inventory.<\/p>\n

NRV = Estimated Selling Price – Cost of Completion<\/p>\n

NRV = $250 – $20<\/p>\n

NRV = $230<\/p>\n

Therefore, the net realizable value of each smartphone is $230. This means that Company XYZ expects to receive $230 per unit after accounting for all associated expenses.<\/p>\n

Net realizable value is not only applicable to inventory but can also be used in various other situations. Now, let’s address some frequently asked questions related to net realizable value:<\/p>\n

\n
\n

Table of Contents<\/p>\nToggle<\/span><\/path><\/svg><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n