Valuation of inventories

my dear friends ,why the company valued it's inventories in Net realisable value?????what is the reason gove some examples
Replies (3)
Quick Summary
Companies value their inventories using the 'lower of cost or Net Realisable Value' (NRV) principle. This means they record inventory at whichever value is less: its original cost or the price it can be sold for, minus selling costs. This method ensures that potential losses on inventory are recognised promptly. For instance, if a company bought computers for £10,000 but the current market price has dropped to £9,000, the inventory would be valued at £9,000 to reflect this anticipated loss.

The company values inventory both in cost terms and NRV. Then it considers which ever is lower. Eg. if you purchased computers for 10,0000₹ and want to sell them immediately because you want to buy another one. Currently, your inventory after few days, the market selling price is down to 9,0000₹ it is a loss to you when you sell it. To record this loss, this philosophy is used to value inventory at lower of cost or NRV.  

Cos 90,000₹ - closing inventory balance @ NRV

NRV loss write off 10,000₹ Loss is debited to revenue

Inventory 1,00,000₹ - Inventory always recorded at historical cost or NRV

 

Please note that on the balance sheet, only revalued inventory value is recorded. The above entry is just an example on how a loss is recognised. Sent a PM with examples

 

Hi sry made a mistake

usually the adjustment with cos is like

By Inventory a/c

To COS a/c

(cos reduced by closing inventory)

so

By Inventory a/c 90000

To Cos a/c 90000

By NRV loss write off a/c 10000

or simply

Cos a/c 10,000

To Inventory 10,000

note. Adj made again. I’m giving up. Some help appreciated eon entries.

 

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