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NRV, Break up Value, Cost Value

Forums › FIA Forums › FA2 Maintaining Financial Records Forums › NRV, Break up Value, Cost Value

  • This topic has 6 replies, 2 voices, and was last updated 4 years ago by Muhammadi.
Viewing 7 posts - 1 through 7 (of 7 total)
  • Author
    Posts
  • May 31, 2021 at 8:44 am #622392
    Muhammadi
    Participant
    • Topics: 31
    • Replies: 59
    • ☆☆

    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!

    May 31, 2021 at 3:20 pm #622454
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10591
    • ☆☆☆☆☆

    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.

    May 31, 2021 at 9:07 pm #622514
    Muhammadi
    Participant
    • Topics: 31
    • Replies: 59
    • ☆☆

    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!

    June 1, 2021 at 7:41 am #622549
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10591
    • ☆☆☆☆☆

    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.

    June 3, 2021 at 9:24 pm #622997
    Muhammadi
    Participant
    • Topics: 31
    • Replies: 59
    • ☆☆

    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

    June 4, 2021 at 7:30 am #623053
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10591
    • ☆☆☆☆☆

    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

    June 4, 2021 at 7:24 pm #623208
    Muhammadi
    Participant
    • Topics: 31
    • Replies: 59
    • ☆☆

    Got it!
    Thanks sir!

  • Author
    Posts
Viewing 7 posts - 1 through 7 (of 7 total)
  • The topic ‘NRV, Break up Value, Cost Value’ is closed to new replies.

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