Difference between NRV and "fair value less costs to sell"

All topics related to IFRS Standards.
Post Reply
Pluie
Posts: 4
Joined: 27 Oct 2021, 11:38

Difference between NRV and "fair value less costs to sell"

Post by Pluie »

Dear community,

I've got a question regarding inventory valuation and disclosure. As widely known, inventory is required to be valued at the lower of cost and net realisable value (NRV). In IAS 2 Inventory's disclosure part, para. 36 (c), states that, "the carrying amount of inventories carried at fair value less costs to sell" shall be disclosed. There is a wording difference between NRV and this "fair value less costs to sell". Are these two essentially the same thing, or the disclosure requirement is somehow different to the valuing requirement?

Thank you for your time!
Warm regards, Pluie
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: Difference between NRV and "fair value less costs to sell"

Post by Marek Muc »

not the same, para 36(c) is a disclosure related to para 3(b):
This Standard does not apply to the measurement of inventories held by:
[...]
(b) commodity broker-traders who measure their inventories at fair value less costs to sell. When such inventories are measured at fair value less costs to sell, changes in fair value less costs to sell are recognised in profit or loss in the period of the change.
DJP
Trusted Expert
Posts: 345
Joined: 26 Jun 2020, 15:57

Re: Difference between NRV and "fair value less costs to sell"

Post by DJP »

NRV = fair value of inventory in its current state - expected costs for completion - costs to sell
FV less cost to sell = fair value of inventory in its current state - costs to sell
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: Difference between NRV and "fair value less costs to sell"

Post by Marek Muc »

DJP wrote: 01 Nov 2021, 15:41 NRV = fair value of inventory in its current state - expected costs for completion - costs to sell
Well, NRV is NOT fair value less [...]. NRV is entity-specific, fair value isn't.
DJP
Trusted Expert
Posts: 345
Joined: 26 Jun 2020, 15:57

Re: Difference between NRV and "fair value less costs to sell"

Post by DJP »

mmm... I think you are referring to market value. I agree that market value is not entity specific, but fair value should take the meaning of fair value in IFRS 13.
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: Difference between NRV and "fair value less costs to sell"

Post by Marek Muc »

fair value is not entity specific, see IFRS 13.2:
Fair value is a market-based measurement, not an entity-specific measurement.
DJP
Trusted Expert
Posts: 345
Joined: 26 Jun 2020, 15:57

Re: Difference between NRV and "fair value less costs to sell"

Post by DJP »

In fact I just consulted my books out of curiosity and NRV and fair value less costs to sell are the exact same thing
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: Difference between NRV and "fair value less costs to sell"

Post by Marek Muc »

It often is the same in practice, but there is a conceptual difference. For example: you're a producer and you've contracted deliveries several months ahead. In the meanwhile, prices on the market (i.e. fair value) went up. But your NRV is the contracted price, which will be lower than current fair value.
Post Reply