What is Net Realizable Value Or Cash Realizable Value - Definition - Meaning - Example - Calculations - Explanation

Net Realizable Value (NRV) Or Cash Realizable Value (CRV) is the amount of an Asset which is expected to be received or offered for sale when we valuate an asset. It is mostly used in case of Accounts Receivable and Inventory.

We valuate an Accounts Receivable, when we deduct the Closing Balance of Allowance for Doubtful Accounts from it. The remaining amount is the amount which we are expected to be received from customers in the form of Cash. To Calculate NRV For Accounts Receivable, the formula is given:

NRV = Ending Balance of Accounts Receivable - Closing Balance of Allowance for Doubtful Accounts

Or

NRV = Gross Amount Of Accounts Receivable - Allowance For Doubtful Accounts

In case of Inventory, it is the amount which is left after deducting the necessary costs incurred in bringing the inventory in saleable position from Selling Price (Market Value). Mathematically, we can write as shown below:

NRV = Market Value - Any Costs incurred in bringing the goods in saleable position such as Transportation Expenses + Selling Expenses, etc.

Example, if a company has left closing inventory costing Rs. 30000 (Market Value To Sell = Rs. 50000 , then during that accounting cycle, the company spends Rs. 2000 on Transportation , Marketing & Selling Expense = Rs. 2500, etc. Now , NRV for inventory is:

Market Value - Transportation Expenses + Selling Expense

50000 - 2000 + 1500 = Rs. 35500

Now, inventory is always valued at NRV Or Cost whichever is Lower according to Generally Accepted Accounting Principles (GAAP), so inventory is valued at Cost that is Rs. 30000.