Net realizable value (NRV) is defined as what?

• A. Estimated selling price less reasonably predictable costs to complete and dispose
• B. Historical cost minus depreciation
• C. Replacement cost minus obsolescence allowance
• D. Market price minus selling expenses

Answer: (A)

Net realizable value is the amount a company expects to realize from selling inventory in the normal course of business, after subtracting the costs needed to finish producing or preparing the item for sale and the costs to dispose of it. In formula terms: NRV = estimated selling price in the ordinary course minus reasonably predictable costs of completion and disposal. This defines NRV for inventory because it reflects the net amount the business can actually collect, not the original cost or replacement cost. The other approaches mix in historical cost, depreciation, or just selling expenses and don’t represent the net amount realizable after completing and selling the item.