Advantages and Disadvantages of Net Realizable Value

Net Realizable Value (NRV) is crucial for accurately assessing asset value, as it reflects the estimated selling price minus any costs to sell, providing a realistic outlook for inventory and receivables. However, relying solely on NRV can lead to undervaluation if market conditions fluctuate or if the estimation process is overly conservative. Thus, while NRV aids in financial transparency and decision-making, it may also obscure the true potential value of assets in dynamic markets.