Accounting - Application of 'lower of cost' and 'net-realisable value'
(NRV) rule

Application of 'lower of cost' and 'net-realisable value' (NRV) rule

This rule is applied to individual stock items. It is important that
students can adequately define each of these terms. Below is an example of
an application of that rule.

Required

Complete the following table by calculating value of stock on hand at the
end of the period.

ITEM
COST
NRV
QUANTITY
VALUE

Printers
450
490
10
4 500

Modems
150
120
6
720

Scanners
300
400
20
6 000

Total

11 220

The typing in bold is the solution to this question. Do not forget to
include the total. You may be asked why the net realisable value for
this brand of modem is lower than cost.

Interactive SWF

reasons may include

later, more technically advanced models are now available

later models are cheaper

there has been a fall in demand for modems

later models have modems already built into computers

reasons for stock loss may include

theft by customers and staff

wastage, obsolescence and items exceeding their use by date

other invoicing, which occurs when a business is charged more for goods than are actually delivered


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