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Hi tutor,
I understand if NRV is 0, the double entry wiil be:
DR Expenses
CR AssetsIf lets say, the NRV is more e,g $14,000. The cost is $13,000. Then how to account the difference. What will be the double entries?
Thank you 🙂
Short answer – there isn’t one
Suppose y/e inventory is $100k before management carries out an NRV review – so for the draft financial statements, the double entry is:
Dr Closing inventory (asset) $100k
Cr Closing inventory (P/L) $100kThen NRV exercise shows that the NRV of some product/line items is $2k less than cost, so journal adjustment is:
Dr Closing inventory (P/L) $2k
Cr Closing inventory (asset) $2kIf NRV is > cost there is no adjustment – inventory is already stated at the lower amount. You can “revalue” inventory upwards in anticipation of a future sale – you have to wait until you sell it (when you recognise revenue).
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