馃攳
Net Realizable Value (NRV) | Example | How to Calculate NRV? - YouTube
Channel: WallStreetMojo
[11]
hello everyone hi welcome to the channel
of WallStreetmojo watch the video
[16]
till the end also if you are new to this
channel then you can subscribe us by
[20]
clicking the bell ican today we have a
topic with us is net realizable value
[24]
NRV net realizable value is user
inventory the most probable a place
[30]
where it is used see it is it an NRV
is a total amount a company should
[34]
expect to receive once its assets are
sold or disposed off it is a total
[39]
amount company should expect to receive
its asset that could mean when tree that
[42]
can be tangible assets and they are sold
or disposed - any cost to come from
[46]
disposal or sale now the first thing
that we will study is what is the NRV
[50]
what is net realizable value see as we
discussed in the dialogue box it is a
[54]
value of the asset excluding a
reasonable estimate of cost so I'll just
[58]
write value of asset less cost okay with
a disposal of the assets or the eventual
[65]
sale so which is realized or deprived
upon the sale of that asset and it is
[68]
basically the net realizable value so it
is d it is commonly used in the context
[72]
of as I told you in the very beginning
inventory valuation and count
[76]
receivables okay now I'll take you to
the steps of calculating steps to
[86]
calculate the NRV the step one goes over
here as first of all you will need to
[93]
determine the market value of the asset
once you do that the second step will go
[98]
you know list down all the costs
associated with the process of selling
[102]
that includes transportation insurance
productions testing tax miscellaneous
[107]
expenditures just go for it step 3
calculate the NRV is equal to your
[113]
market value of the asset less the
selling cost of the asset just do this
[121]
and you will get your answer okay I'll
take you the second part over here as
[125]
the NRV's example part let's say
there's a company called XYZ and they
[130]
are trying to get rid of some of its
outdated phones and it is expecting to
[134]
sell them at let's say $5,000 to a local
buyer but it must be 240 to have them
[140]
shipped and insured like a list on
somebody like 5000 to local
[144]
buyer and they
to pay closely to $240 dollars so that
[147]
you know it can be insured and you know
it can be shipped and another $40
[152]
dollars they need to be to complete the
paperwork so the telephone is NRV can be
[156]
calculated as 5000 less to
240 - 40 that gives you
[161]
4720 right
now the next point of discussion with us
[166]
is NRV in inventory valuation now
NRV is a conservative method which means
[173]
that the account accountant should post
to the transaction that does not
[176]
overstate the value of the asset the
value of the assets and that the
[183]
potentially generated less profit so for
valuing asset it usually requires a
[187]
certified public accountant which is
known as CP years to do the job as it
[191]
involves a lot of judgment on this part
so on the part so let us take an example
[195]
to understand this in a detailed format
let's say this is year 1 and in year
[201]
one process company ABC has an inventory
having inventory I to having a cost of
[206]
let's just $70 okay and the market value
of that inventory is to $200 this is the
[213]
writing over here this is your cost this
is gonna be your market value that is
[220]
200 right so over here your NRV is going
to how much NRV is gonna be 200 less
[227]
70 and let's say to sell that
inventory you require $30 so selling
[233]
cost is let's say $30 so 200 - 70 - 30 thirty that 70 in total $100 right so
[242]
since the
cost of the inventory is 70 here
[245]
which is lower than the NRV that is a
100 year we value the inventory on
[250]
the balance sheet at 70 cost or NRV
whichever is lower right so on the
[257]
balance sheet what price will go as
70 whichever is low now let's take
[262]
year 2
now the market value of the year of the it
[265]
of the same inventory let's say it
declines to $150 dollars market value
[269]
okay at the cost and preparation of the
cost of the preparation cost to sell
[274]
that inventory remains the same at $70
that is the
[278]
selling pot selling cost $70 dollars
and $30 dollars respectively so now
[284]
your NRV is going to be how much it's
going to be 150 - 70 - 30 and that will
[290]
give us answer as 50 now since the cost
of the inventory is 70 on the balance
[296]
sheet in the year 1 right which is
higher than the NRV without is 50 so the
[301]
value of the inventor and the balance
sheet it will be at the balance sheet
[304]
will be inventory will be at NRV that
is 50 so inventory will be written down
[317]
inventory will be there'll be a write
down in the inventory which will be 70
[323]
- 50 that is 20 so on what will be
the effects see on the asset side there
[331]
will be a reduction of $20 on inventory
writedowns then on the liability side no
[344]
effect now on the shareholders equity
side there will be decline of $20 flow
[353]
through the income statement because
your P&L will decline so your resource
[358]
in surplus will decline to the extent of
$20 so in this context the net
[362]
realizable value if it invented is
important to understand that the company
[366]
using retail or probably the FIFO LIFO
method you know would probably
[372]
not use the NRV of the lower of the cost
method but would rather use the net
[377]
realisable inventory or lower the cost
of market value that is worth that the
[381]
adjustments can be made for each item in
inventory or for the aggregate of the
[385]
entire NRV to the lower of the cost I
know our NRV so one curtailed down the
[391]
inventory account becomes the new buyers for the reporting purpose in valuation
[394]
going forward in case of the US GAAP
does not permit a write up or write
[399]
downs reported in the prior like
the International reporting standards
[402]
even the NRV for the inventory has been
recovered right now the NRV of the I
[408]
will try and understand the NRV of the
Account Receivables see the NRV is actually the
[414]
amount is expected to turn into cash
Account Receivables AR - you know any
[419]
credit balance that gives you NRV
which can also be expressed as debit
[423]
balance in the asset account so like for
instance if the debit balance in the
[426]
account receivable is standing at
$10,000 and have the credit balance that
[433]
will be standing at $800 and then 9200
is the resulting of the NRV of the
[437]
account receivable finally let me make
conclusions on this particular topic CNR
[442]
is a total amount of the company that
should expect to receive once its assets
[446]
are sold or disposed of - cost that
comes from its disposal or sale so this
[453]
method is very useful for a Content as
it allows them to follow the
[456]
conservative principle of accounting
while reporting the assets on the
[460]
balance sheet so thank you everyone for
joining the session so that's it for
[464]
this particular topic if you have
learned and enjoyed watching this video
[467]
please like and comment on this video
and subscribe to our channel for the
[472]
latest updates
thank you very much Cheers
Most Recent Videos:
You can go back to the homepage right here: Homepage