Why net realisable value (NRV) matters to a first-time founder
NRV stops inventory and some other assets being carried at amounts the business cannot realistically recover. Overstated assets can hide losses and mislead founders, lenders or investors about financial health. Reviewing expected sale prices and disposal costs early also supports better pricing, purchasing and clearance decisions.
Examples of net realisable value (NRV)
A retailer holds 500 devices recorded at £60 each. It expects to sell them for £55 each but must spend £4 per unit on testing and delivery. NRV is £51 per unit, so the business may need to write inventory down by £9 per unit under the applicable accounting rules.
Common misunderstanding
NRV is not the sticker price or a guaranteed sale value. It deducts necessary completion and selling costs from a supportable estimated price. It can also differ from fair value, market value and liquidation value. The precise measurement and write-down rules depend on the relevant accounting framework.
When to use it
Use NRV at reporting dates and whenever damage, ageing, falling demand or higher selling costs suggest stock may be overstated. Document evidence for prices and costs, assess similar items consistently and revisit estimates when conditions change. Ask an accountant how the applicable standard treats reversals and specific asset classes.