Net realisable

[Justanotherhuman]

Hey guys,
So the net realisable is calculated when the selling expense is higher than cost price. What if their is still a selling expense due to lets say expiration of food and mark-down but it does not exceed cost price, how is it recorded? I'm not sure if it's recorded at all?

[Seamus Wong]

Hey guys,
So the net realisable is calculated when the selling expense is higher than cost price. What if their is still a selling expense due to lets say expiration of food and mark-down but it does not exceed cost price, how is it recorded? I'm not sure if it's recorded at all?

Met Realisable value refers to the estimated selling price of an item after deducting costs incurred in its marketing, selling and distribution. It is always considered, but only recorded when it is lower than the cost price of the item of inventory. You record it first in the general journal, then the inventory card and then transfer the balance to the balance sheet.

[jurisprudence]

Hey!

When you refer to the study design, you’ll notice that the applicable rule is called “the lower of cost and net realisable value”. This means, that inventory must be valued at whichever is lower, cost, or net realisable value.

Cost price will be calculated by including all costs required to bring inventory into a location and condition ready for sale. Remember that these must be able to be calculated on a logical basis (product costing). This will be displayed as the cost of the inventory on the stock card.
Alternatively, as Seamus has stated, net realisable value (NRV) refers to the estimated selling price of an item after deducting costs incurred in its marketing, selling and distribution. A NRV may become lower than the cost price of the inventory for a variety of reasons, such as damage or obsolescence.

When applying the rule, you will calculate both of these values, and record whichever is lower. If the cost price is lower, no adjustment will need to be recorded. Alternatively, if the NRV is lower, this will be recorded in the general journal/ledgers (as an inventory write down) and inventory card. The value of the inventory after the application of this rule will appear on the balance sheet, whilst the inventory write-down will appear on the income statement.

Hope this helps!