NRV in IAS 2 includes which of the following in its calculation?

NRV in IAS 2 includes which of the following in its calculation?

• A. A Selling price minus costs of selling minus present value of future cash flows from sale
• B. B Selling price minus costs of selling
• C. C Cost to purchase
• D. D Replacement cost

Answer: (A)

Net realisable value is the amount a company expects to realise from selling inventory in the ordinary course, after accounting for what it will cost to complete the product and to sell it. If the sale is not immediate and receipts are deferred, you also reflect the time value of money by subtracting the present value of the expected future cash inflows from the sale. So the NRV is the selling price less (or minus) the costs of completing the item and selling it, and also less the present value of future cash receipts from the sale. This gives a realistic measure of what will actually be realised from the inventory. The other ideas don’t fit NRV because they use only the purchase cost or a different concept of cost (like replacement cost) and omit either the completion and selling costs or the discounting of future cash flows, which are not components of NRV.

Net realisable value is the amount a company expects to realise from selling inventory in the ordinary course, after accounting for what it will cost to complete the product and to sell it. If the sale is not immediate and receipts are deferred, you also reflect the time value of money by subtracting the present value of the expected future cash inflows from the sale. So the NRV is the selling price less (or minus) the costs of completing the item and selling it, and also less the present value of future cash receipts from the sale. This gives a realistic measure of what will actually be realised from the inventory.

The other ideas don’t fit NRV because they use only the purchase cost or a different concept of cost (like replacement cost) and omit either the completion and selling costs or the discounting of future cash flows, which are not components of NRV.