How Do You Calculate Net Realizable Value?
Net Realizable Value is a method of evaluating the value of the assets held by a company in the context of inventory. It uses the fair market value to determine how much a company could gain by selling its inventory. The NRV is calculated in an effort to prevent companies from under or overestimating the value of its current inventory. Add the total market value of all inventory held by the company. This is the amount the company could sell its assets for. As an example, take a toy company with 2,000 teddy bears in inventory that are sold for $15 each to consumers and 500 board games that are sold for $10 each. 2,000 bears x $15 + 500 x $10= $35,000 total market value. Add the costs associated with selling each asset the company possesses. This would include the cost of completing unfinished goods and shipping expenses. Continuing the example assuming the cost of distributing a teddy bear or board game to stores and selling it is $5 apiece. 2,000 x $5 + 500 x $5= $12,500. Subtract the
