Net realizable value in Paraguay
What is net realizable value?
Before answering this question, the subject is oriented to all companies that produce and/or sell inventories and that according to the International Accounting Standard No. 2 “Inventories” requires companies to evaluate whether their goods are impaired in a given period. This same accounting standard establishes that inventories shall be measured at the lower of cost or net realizable value.
Therefore, the net realizable value, according to IAS 2, is the estimated selling price of an asset in the normal course of business less the estimated costs to complete its production and those necessary to make the sale. In other words, it is a way of determining whether the costs charged to inventories are above or below compared to the net realizable value.
How do I determine net realizable value?
The formula for determining net realizable value (NRV) is as follows:
|NRV = ESTIMATED SELLING PRICE – ESTIMATED COSTS TO COMPLETE PRODUCTION – ESTIMATED COSTS NECESSARY FOR SALE|
Should the net realizable value be calculated for each inventory item?
IAS 2 indicates that generally the cost of inventory should be written down to net realizable value and for that purpose it will be calculated for each item of inventory; however, it may be appropriate to group items by family, product lines, etc.
Should net realizable value be calculated for the entire inventory cycle?
IAS 2 indicates that it is not applicable to write down raw materials and other supplies held for use in the production of inventories, provided that the finished goods in which they are incorporated are expected to be sold at or above cost. In other words, it is not advisable to calculate the net realizable value of items that are in the process of production.
Where is the expense presented in the income statement for writing down the cost of inventory to net realizable value?
The amount of any write-down to net realizable value will be recognized as an expense and recognized in the period in which the write-down occurs. In the income statement, such expense will be presented according to its nature, being generally in general expenses.
What is the tax impact of writing down the value of the inventory to the determined net realizable value calculation?
The tax jurisdiction of each country will have to be evaluated. If the tax administration does not accept this expense as deductible for income tax purposes, a deferred income tax asset or liability will be determined in accordance with International Accounting Standard No. 12 “Income Taxes”.