What is Net Realizable Value?
Net realizable value (NRV) is the estimated selling price of an asset in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. It is the ceiling for measuring certain assets under IFRS.
How It Works
- Estimate the selling price of the item or receivable in its current market.
- Subtract the costs required to complete it, if any.
- Subtract the selling costs — commissions, packaging, delivery, marketing.
- Compare the result to the asset’s carrying amount.
- If NRV is lower, write the asset down to NRV in the current period.
Saudi Context
Under IAS 2 and IFRS 9 as adopted by SOCPA, Saudi businesses must measure inventory at the lower of cost and NRV and assess receivables for expected credit losses. ZATCA accepts NRV-based write-downs as deductible when supported by documentation.
Example
Inventory cost: SAR 80,000. Expected selling price: SAR 95,000. Completion cost: SAR 5,000. Selling cost: SAR 12,000. NRV = 95,000 − 5,000 − 12,000 = SAR 78,000. Carrying value is written down by SAR 2,000.