115 CFA
File: Financial Analysis - Reading 25 - 5. Measurement of Inventory Value

5. Measurement of Inventory Value

g. describe the measurement of inventory at the lower of cost and net realisable value;

h. describe implications of valuing inventory at net realisable value for financial statements and ratios;

What is the acronym NRV?
Net realizable value = Estimated selling price less estimated costs of completion necessary to make the sale.

What is Historical cost?
The cash equivalent price of goods or services at the date of acquisition.

What is Market value (Replacement cost)?
The cost that would be required to replace an existing asset.

What is Fair value?
The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction.

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