Net realizable value is defined as the estimated selling price less costs of completion and selling.

• A. NRV equals cost to produce.
• B. NRV equals fair value.
• C. False
• D. True

Answer: (D)

Net realizable value is the amount a company expects to realize from selling inventory in the ordinary course, after subtracting the costs to finish preparing the item for sale and the costs to complete the sale. This means NRV = estimated selling price minus costs of completion and selling. It’s used to determine whether inventory should be written down when the cost exceeds the NRV. For example, if you can sell an item for 100, but it costs 10 to finish and 5 to sell, NRV is 85; if the item cost 90 to acquire, you’d write it down to 85. NRV is different from cost to produce and from fair value; fair value is a market-based measure, not the net amount expected to be realized from sale. So the statement defining NRV this way is true.