Question

What is the net realizable value?

1) Selling price minus costs of completion, disposal, and transportation
2) Selling price plus costs of completion, disposal, and transportation
3) Selling price multiplied by costs of completion, disposal, and transportation
4) Selling price divided by costs of completion, disposal, and transportation

Answer 1

Net realizable value is calculated as the expected selling price of an asset minus the costs required to complete, dispose of, and transport the asset, aligning with option 1 in the given question.

Step-by-step explanation:

The net realizable value (NRV) is a measure used in accounting to determine the value of an asset, which can be derived from the asset's expected selling price minus the sum of costs necessary for the completion, disposal, and transportation of that asset. Therefore, the correct answer is option 1) Selling price minus costs of completion, disposal, and transportation. It is important to consider NRV when valuing inventory goods that have been produced but not yet sold as it provides a realistic estimate of the cash inflow from the sale of inventory, considering the expenses still to be incurred for selling the goods.