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When is an asset recorded at its :
1.Net Realisable Value
2.Break up value
3. Cost Value
Would you mind also telling me the difference between Break up value and Net Realisable Value?
Thanks!
Not a huge difference, but I suppose you might be able to argue that the NRV of a piece of unfashionable jewellery is $200, but the value of the gold when melted down is $300 (break-up value). However, you would expect the seller to perhaps know that and be looking for $300 NRV even before destruction.
Your answer sometimes makes me cry.
From your answer I just understood that:
There is no huge difference between Break up value and NRV.
But what do you mean by saying :
(but I suppose you might be able to argue that the NRV of a piece of unfashionable jewellery is $200, but the value of the gold when melted down is $300 (break-up value). However, you would expect the seller to perhaps know that and be looking for $300 NRV even before destruction.)
You also didn’t answer the first part of my question.
When do we record an asset at it’s break up value?
When do we record an asset at it’s cost value?
When do we record an asset at it’s NRV?
Thank you!
Current assets (like inventory) are normally shown at the lower of cost and NRV.
Non-current assets (like machinery) are normally shown at cost less depreciation. Usually their NRV is not relevant as they are being kept nd used in the business.
If, however, the business is being closed down, non-current assets would be shown at their NRV.
The term ‘break-up value’ is normally reserved for whole businesses being closed down rather than individual; assets being sold. So if a business is going to be closed imminently the SOFP will be presented on a break-up basis where all assets will be shown at their estimated NRV.
Thank you so much sir!
I got you thoroughly.
Are the following 2 points right?
1. If a business is going concern, we
record inventory at the lower of cost
and NRV. We take the lower amount.If a business is not going concern, we
only record inventory at it’s ‘Break up
value ‘ or ‘Sale Value’ or ‘NRV’ . We
don’t record it at the lower of cost and
NRV.We record an inventory at the lower of
cost and NRV only if the business is
going concern.2. Am I right If I say:
Break up value= Sale Value= NRV
Inventory is always recorded at the lower of cost and NRV. If the business is not a going concern then some work in progress might not be completed and this may push the NRV below cost.
“Break up value= Sale Value= NRV” almost right, but NRV is not quite the same as salw value. NRV is sale value less all further costs of completion and sale. Eg
If a component cost 10 to buy and it had had 5 of work done on it its cost is 15. To finish the article will take another 7 and the item would then sell for 20.
NRV = 20 – 7 = 13, the NET amount you can earn.
Cost = 15
Inventory valuation = 13, the lower oprion
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