Net Realizable Value of Inventory Measurement

IAS 2 Inventories, par. 9 stated that :

Inventories shall be measured at the lower of cost and net realizable value.

Par. 7 of IAS 2 defined the Net Realizable Value as :

Net realizable value refers to the net amount that an entity expects to realize from the sale of inventory in the ordinary course of business. Fair value reflects the amount for which the same inventory could be exchanged between knowledgeable and willing buyers and sellers in the marketplace. The former is an entity-specific value; the later is not. Net realizable value for inventories may not equal fair value less costs to sell.

So, net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

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