The net realisable value of an item at a month end: what one unit should fetch, less what it still costs you to finish and sell it. Stock is compared against this figure when you value closing stock at the lower of cost and net realisable value.
When to use it
At each period close, for items whose selling price has fallen, whose condition has got worse, or which you now expect to sell below cost. Items you expect to sell at a healthy margin need no entry.
Before you start
- The item must exist on the Product master.
- The closing stock for that month must be recorded, otherwise there is nothing to write down.
- You need create rights on this screen. This is a costing judgement, so it usually sits with the costing or finance team.
Where to find it
Masters > Manufacturing > Product NRV.
The fields on this screen
| Field (on screen) | What to enter | Required |
|---|---|---|
| Product | The item this net realisable value is for. Record one value per item per period end. | No |
| Period End | Month end this value applies to. Use the last day of the month or the write-down report finds no stock. | No |
| NRV per Unit | What one unit should fetch, less the cost to finish and sell it. Stock is valued at the lower of cost and this. | No |
How it works
Saving records one judgement: this item, this month end, this value per unit.
The Lower of Cost and NRV report then puts your figure beside what the stock actually cost. It picks up the closing quantity and the average cost per unit for the same month end, and shows the lower of the two values. The write-down is the amount by which cost exceeds your figure, multiplied by the closing quantity. Where cost is already the lower of the two, the write-down is nil and the item reads as fairly stated.
The screen records the input and the report does the arithmetic. Nothing is posted to your accounts from here. If you decide to book the write-down, raise the journal yourself.
Tips and common mistakes
- Use the last day of the month as the period end. The closing stock is matched on that exact date, so a mid-month date finds no stock, and the report shows nothing to write down.
- Record one value per item per period end. If there are two entries for the same item and month end, both are read and the write-down is counted twice.
- The value is per unit and net. Take the selling price and subtract what it still costs you to complete and sell.
- The same figure is not carried into next month automatically. A judgement applies only to the month end it names.
Related guides
- Product, Lower of Cost and NRV report, Stock Valuation, Journal Voucher.