Value inventory at the lower of cost and net realisable value
Compare each inventory item's cost with its net realisable value and use the lower amount for the closing valuation.
Cambridge IGCSE Accounting 0452 / (9–1) 0985, 2027–2029 Version 1. These lessons follow the 2027–2029 syllabus only; the separate 2026 syllabus update is not yet mapped. Written practice is self-checked, not an official Cambridge grade. Full timed-paper practice and human subject-teacher review remain pending.
Before you begin
- No previous accounting study is assumed. Keep the business, transaction and accounting period in view, and distinguish a resource, a claim and a performance result.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
How is NRV calculated?
What you will learn
- Define net realisable value
- Apply the lower-of-cost-and-NRV rule
- Calculate closing inventory from item-level evidence
Compare cost with what can be recovered
Net realisable value (NRV) is the estimated selling price less costs to complete and sell the inventory. At the reporting date, value inventory at the lower of cost and NRV.
Apply the comparison item by item when details are supplied. If cost is $500 and NRV is $460, use $460; if cost is $300 and NRV is $360, use $300. Do not raise an item's value above cost because the expected selling price increased.
Use evidence at the reporting date
A damaged or obsolete item may have an NRV below cost. Record that lower amount so the statement does not show inventory at more than the expected amount recoverable from sale.
Estimate the costs to complete and sell consistently with the question. Do not subtract general future business expenses that are unrelated to selling the specific inventory.
Pause and explain
An item costs $380. Its estimated selling price is $420 and selling costs are $55. What closing value is used?
Worked example
Item A has cost $500 and NRV $460. Item B has cost $300 and NRV $360. Calculate the closing inventory value.
Show the worked solution
- A is valued at the lower amount: $460.
- B is valued at the lower amount: $300.
- Total inventory = 460 + 300 = $760.
Answer Closing inventory is $760.
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Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Inventory items have: A cost $600, NRV $570; B cost $250, NRV $290; C cost $180, NRV $140. Calculate closing inventory.
Give me a hint
Choose the lower value for each item, then add the selected amounts.
Compare my reasoning
- A: $570; B: $250; C: $140.
- Total = 570 + 250 + 140.
- Closing inventory = $960.
Closing inventory is $960.
Look for these in your work
- Each lower value selected
- Total correct
- Rule applied
A product costs $320, could sell for $390, and needs $25 of work and $18 of selling costs. Calculate NRV and the inventory value.
Give me a hint
Subtract completion and selling costs from the estimated selling price.
Compare my reasoning
- NRV = 390 − 25 − 18 = $347.
- Compare NRV $347 with cost $320.
- Use the lower amount: $320.
NRV is $347; inventory is valued at cost, $320.
Look for these in your work
- Costs deducted
- NRV correct
- Lower amount selected
A damaged item has cost $1,100, expected selling price $1,000 and costs to complete and sell of $160. Calculate the closing value and explain why it is below cost.
Give me a hint
Find NRV before comparing it with cost.
Compare my reasoning
- NRV = 1,000 − 160 = $840.
- Lower of cost $1,100 and NRV $840 is $840.
- The damage and selling costs mean the expected recoverable amount is lower than cost.
Value the item at $840, the lower NRV; cost is $260 higher.
Look for these in your work
- NRV correct
- Lower amount correct
- Reason linked to recoverability
Common mistakes
- Using the higher of cost and NRV
- Applying expected selling price without deducting completion or selling costs
- Using next period's information without tying it to conditions at the reporting date
What can you explain now?
Cost is $240 and NRV is $215. What value is used?
Compare with the explanation
$215
Use the lower of cost and NRV.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
What two values are compared when valuing closing inventory?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.