ECONOMICS

Detailed explanation-1: -C . Explanation: The company is carrying an inventory with uncertain future value, and in this case, obsolescence, oversupply, price declines, etc, can affect the value of the inventory. In that case, the net realizable value will be lower than the cost.

Detailed explanation-2: -When inventory is measured as the lower of cost or net realizable value, it is embracing the accounting principle of conservatism. Though NRV may be the most dramatically reduced valuation for inventory, the aim is to reduce the carrying value of goods to not overstate the income statement.

Detailed explanation-3: -Example of Net Realizable Value The cost to prepare the widget for sale is $20, so the net realizable value is $60 ($130 market value-$50 cost-$20 completion cost). Since the cost of $50 is lower than the net realizable value of $60, the company continues to record the inventory item at its $50 cost.

Detailed explanation-4: -Which of the following regarding the lower of cost of market/net realizable value rule for inventory are true? When the value of inventory drops below the original cost of inventory shown in the financial records, net income is reduced.

Detailed explanation-5: -Net Realisable Value (NRV) is the amount by which the estimated selling price of an asset exceeds the sum of any additional costs expected to incur during the sale of the asset. NRV has significant importance in the valuation of inventory.