Inventory NRV assessments (lower of cost and net realisable value)

An Inventory NRV Assessment records a write-down of an item's stock to its net realisable value (NRV), so that the Inventory Valuation page carries the stock at the lower of cost and what it can still be sold for. You make an assessment at a period end, after the costing engine has valued your stock and before you read or publish the valuation for that date.

Each assessment is a dated record for one item in one accounting book. You type in the figures yourself. The one figure xMatix reads back is Outstanding Write Down: the Valuation Statement subtracts it from the item's cost.

Overview

Accounting standards require inventory to be measured at the lower of cost and net realisable value. NRV is the estimated selling price less the costs still needed to complete the stock and to sell it. When NRV falls below cost, the difference is a write-down. If NRV later recovers, frameworks such as Ind AS and IFRS let you reverse the write-down, but never above the original cost. US GAAP does not allow the reversal.

In xMatix the cost side comes from the perpetual costing engine. NRV assessments are the record of the write-down on top of that cost. It helps to know three things before you start:

• You do the calculation. The form does not calculate anything. NRV, the write-down or reversal for the run, the outstanding write-down and the carrying value are all saved exactly as you type them.
• Only one field changes the valuation. The Valuation Statement reads only the item, the accounting book, the As Of Date and the Outstanding Write Down. Every other figure on the record is for your audit trail and for the Valuation & NRV dashboard.
• Nothing posts to the general ledger. Saving an assessment creates no journal, and closing a fiscal period does not post one either. If your books must show the write-down, post a manual journal (see Step 5).

When to use it

• At a month, quarter or year end, when slow-moving, damaged, obsolete or seasonal stock can no longer be sold for what it cost.
• At a later period end, when a stock you wrote down has recovered in value and your framework allows a reversal.
• When a secondary accounting book (for example a management book) must show a different write-down from the primary book. Record a separate assessment against each book.

Do not use an assessment to correct a wrong cost. A wrong cost comes from the movement that brought the stock in. Correct that document, and the engine re-costs the item.

How xMatix handles it

• Latest assessment wins. For each item and book, a valuation as on a date uses the assessment with the latest As Of Date on or before that date. Its Outstanding Write Down is subtracted from the item's cost to give the carrying value. Earlier assessments are kept as history but no longer count.
• History stays correct. Because the lookup is by date, a valuation as on an earlier date still uses the assessment that applied then. Period and year comparisons on the Valuation Statement each use their own column date.
• Item level only. An assessment applies only when its Item is filled in. An assessment that names only an Item Group is not read by any statement.
• The book must match. The Valuation Statement uses the book you pick, or the primary book when there is no picker. An assessment whose Accounting Book is empty, or names another book, is ignored.
• Branch is not used. The write-down is applied to the item as a whole, whatever branch the assessment names.
• No stock, no write-down. An item with no stock on the statement date has no row, so its write-down is not shown.

Prerequisites

• Your administrator has added Accounting Book to the Inventory NRV Assessment form. The shipped form does not include it, and without it an assessment never reaches the Valuation Statement (see Configuration).
• The company has an active primary accounting book, and its stock is costed (the item has rows on Inventory → Inventory Valuation).
• You have the item's cost on the assessment date, read from the Valuation Statement, and your estimates of selling price, cost to complete and cost to sell.
• Your security profile can create Inventory NRV Assessments (see Permissions).

Procedure

Step 1 — Open the Inventory NRV Assessments list

Inventory NRV Assessment is not on any app's navigation bar. Open the App Launcher, type Inventory NRV Assessment in the search box and select it under All Entities. The All Inventory NRV Assessment view opens. Its columns are Name, Partner Account, Branch, Policy, As Of Date, Cost Value, Nrv, Created By, Created On and Modified By. The view's visibility is set to the person who created it, so ask your administrator to share it or to create a shared view if your team needs one.

Step 2 — Read the item's cost on the assessment date

1. Open Inventory → Inventory Valuation.
2. Set Balance as On to the assessment date and, if the company has more than one book, pick the book in the book picker.
3. Leave Branches with no branch selected and Compare by on no comparison, so the figure is company-wide.
4. Note the item's Value. If the item already has an assessment, that figure is cost less the earlier write-down. Add the earlier Outstanding Write Down back to get cost.

Step 3 — Work out NRV and the write-down

Do this on paper or in a spreadsheet, rounding to two decimals:

1. NRV = Estimated Selling Price − Cost To Complete − Cost To Sell.
2. Required write-down = Cost − NRV, or zero if NRV is at or above cost.
3. Compare it with the Outstanding Write Down on the item's previous assessment for the same book (zero if there is none):
   • If the required write-down is higher, the difference is Write Down This Run.
   • If it is lower and your policy allows reversal, the difference is Reversal This Run. It can never exceed the previous outstanding write-down.
   • If it is lower and your policy does not allow reversal, nothing changes. Keep the previous outstanding write-down.
4. Outstanding Write Down = previous outstanding + Write Down This Run − Reversal This Run.
5. Carrying Value = Cost − Outstanding Write Down.

Step 4 — Create the assessment

1. On the list, select New. The Inventory NRV Assessment Create form opens.
2. Fill in Name (required), for example the item and period. xMatix does not number assessments.
3. Fill in Policy and Grouping as your accounting policy describes them (both are free text).
4. Choose the Partner Account (the company), and the Branch if you want to record one.
5. Choose the Item. You can also choose an Item Group for reference, but the Item is what counts.
6. Choose the Accounting Book (once your administrator has added it to the form).
7. Set As Of Date to the assessment date.
8. On the Values tab, choose the Fiscal Period and enter Cost Value, Estimated Selling Price, Cost To Complete, Cost To Sell, Nrv, Write Down This Run or Reversal This Run, Outstanding Write Down and Carrying Value from Step 3.
9. Select Save.

The record opens on its view page. Reopen Inventory → Inventory Valuation for the same date and book: the item's Value is now cost less the outstanding write-down you entered.

Step 5 — Post the write-down to the general ledger

The general ledger is not changed by the assessment, so the Balance Sheet, Profit and Loss and Trial Balance still show stock at cost. To bring them in line, post a manual journal dated on the assessment date:

• for a write-down: debit your inventory write-down expense account and credit your inventory account with Write Down This Run;
• for a reversal: debit the inventory account and credit the write-down expense account with Reversal This Run.

Keep the journal number in the assessment's Name or in your close file, because the assessment's Journal field is not on the form.

Step 6 — Correct or remove an assessment

• Change it. Open the record and select Edit in the header, or select Edit on its row in the list. Edit opens the same form as Create. Change the figures and save. The Valuation Statement picks up the new Outstanding Write Down at once. If you already posted a journal, post a correcting journal for the difference.
• Remove it. Select Delete on the record or the row. The statement falls back to the item's previous assessment, or to cost if there is none. Reverse any journal you posted for it.
• Copy it. Clone creates a copy of the record with the same values. Change the date and figures before you rely on the copy.

Step 7 — Review the period on the dashboard

The seeded Valuation & NRV dashboard is filed under Parts Manager → Inventory Valuations in the dashboard library. It shows the totals of Carrying Value, Nrv, Write Down This Run and Outstanding Write Down for the assessments dated in the chosen period (this month by default). It also has a monthly carrying value against NRV chart, the write-down by branch, the items carrying the most write-down, and an ageing of remaining cost-lot value by month received. These tiles add up the figures you typed. If you record more than one assessment for an item in the selected period, its figures are counted more than once.

Fields

The Create form shows the fields in this order. The view page shows Policy, Grouping, As Of Date, Fiscal Period, Item, Item Group and the money fields.

Business rules

• No calculation on save. No formula, business rule or validation runs on this record. Every figure is saved as entered, including figures that do not add up. Check Step 3 before you save.
• Carrying value on statements = the item's cost from the cost layers − the Outstanding Write Down of the latest assessment for that item and book dated on or before the statement date.
• Branch columns. With Compare by by branch, the item's whole write-down is subtracted in each branch column where the item has stock (the Total column subtracts it once). When you select branches under Branches, it is subtracted once for each selected branch that holds the item. Read write-downs on the company-wide view, with no branch selected.
• Secondary books. An assessment against a secondary book is read when you pick that book on the Valuation Statement. It does not change the book's Balance Sheet, Profit and Loss or Trial Balance figures.
• No general-ledger effect. Saving, editing or deleting an assessment changes no journal and no GL balance. Closing a fiscal period does not post assessments.
• Period balances. The stored inventory period balances do not include write-downs (see Inventory period balances).
• Deleting is immediate. A deleted assessment stops counting at once; the previous one for the item and book takes over.
• Audited. Changes to assessments are kept in the record's audit history.

Example

A distributor closes September. Its primary book shows 1,000 boxes of a discontinued glazed floor tile at a cost of 120,000.00. The sales team expects to clear them for 110,000.00, with 6,000.00 of freight and commission. There is no cost to complete.

1. NRV = 110,000.00 − 0 − 6,000.00 = 104,000.00. Required write-down = 120,000.00 − 104,000.00 = 16,000.00. There is no earlier assessment, so Write Down This Run is 16,000.00 and Outstanding Write Down is 16,000.00. Carrying Value is 104,000.00.
2. The accountant creates Floor tile 600 – Sep with Policy ReversalAllowed, the company, the item, the primary book, As Of Date 30 September and the September fiscal period, and enters the figures.
3. The Valuation Statement as on 30 September now shows the item at 104,000.00. The accountant posts a manual journal: debit Inventory write-down 16,000.00, credit Inventory 16,000.00.
4. At the end of October nothing has sold, but a buyer has offered 118,000.00 with 5,000.00 of costs. NRV = 113,000.00, required write-down = 7,000.00. The previous outstanding write-down is 16,000.00, so Reversal This Run is 9,000.00 and Outstanding Write Down becomes 7,000.00.
5. The accountant records Floor tile 600 – Oct dated 31 October and posts a 9,000.00 reversal journal. The statement shows 113,000.00 as on 31 October and still 104,000.00 as on 30 September.

Under a NoReversal policy, the October assessment would carry an Outstanding Write Down of 16,000.00, with no reversal.

Training

Practice exercise

In a sandbox company with one primary book:

1. Pick a costed item and note its Value on Inventory → Inventory Valuation for today.
2. Create an Inventory NRV Assessment for the item and the primary book, dated today, with an Outstanding Write Down of 10% of that value. Fill in the other figures consistently.
3. Reopen the Valuation Statement for today.

Expected result: the item's Value has dropped by exactly the Outstanding Write Down, and the total has dropped by the same amount. Set Balance as On to a date before today: the item shows its full cost again. Delete the assessment: today's value returns to cost.

Quick reference

• Open the list from App Launcher → All Entities → Inventory NRV Assessment.
• Fill in Item, Accounting Book and As Of Date, or the assessment is ignored.
• Enter Outstanding Write Down as the cumulative total, not the movement.
• The form calculates nothing; work out NRV and the run amounts first.
• The latest assessment on or before the statement date wins.
• Read write-downs company-wide, not by branch.
• Post a manual journal for the GL; period close will not do it.
• Under a no-reversal policy, never lower the Outstanding Write Down.

Permissions

Inventory NRV Assessment follows ordinary entity access in the security profile. The seeded System Admin, Standard User and Sales Executive profiles have full access (read, create, edit and delete) and are granted the Clone and Delete actions. A user whose profile has no access to the entity does not see it under All Entities and cannot open the list. Because an assessment changes reported inventory values, consider limiting create, edit and delete to your finance team.

Configuration

• Add Accounting Book to the form (required). Go to Setup → Design Studio → Entities, open Inventory NRV Assessment, and on Experience → Layouts open Inventory NRV Assessment Create. Add the Accounting Book field and save; add it to Inventory NRV Assessment View too, so users can see it. See Design a form layout. Until you do, assessments created on the form never affect the Valuation Statement.
• Put it in an app. To give finance users a navigation entry, add the entity to the Finance or Inventory app with Setup → Design Studio → Apps → Manage Items.
• Share a list view. The seeded All Inventory NRV Assessment view is visible only to its creator. Create a view shared with your finance team, with Item, As Of Date and Outstanding Write Down as columns.
• Accounting books. The primary book, and any secondary book you assess against, are set up in the Finance Setup app. See Accounting books.
• GL accounts for the journal. Make sure the chart of accounts has an inventory write-down expense account to debit in Step 5. See GL accounts.
• Dashboard. Valuation & NRV is a seeded dashboard; you can copy and adjust it like any other. See Create a dashboard.

Common problems

I saved an assessment but the Valuation Statement still shows full cost

Check, in this order: the assessment has an Accounting Book and it is the book selected on the statement (the primary book when there is no picker); it has an Item, not only an Item Group; its As Of Date is on or before Balance as On; and Outstanding Write Down is filled in. If Accounting Book is not on your form, ask your administrator to add it, then edit the assessment.

The write-down is too big when I look at one branch

The write-down is applied to the item as a whole, so each branch column, and each branch you select under Branches, subtracts the full amount. Read write-downs on the company-wide statement, with no branch selected.

The value went back up although our policy does not allow reversal

The statement uses whatever Outstanding Write Down the latest assessment carries. If someone entered a lower figure, the write-down is partly released. Edit that assessment and restore the previous outstanding amount.

The Balance Sheet does not show the write-down

Assessments do not post to the general ledger. Post a manual journal for the write-down or reversal (Step 5).

The dashboard totals are higher than the statement

The dashboard adds up the figures on every assessment dated in the selected period. Several assessments for one item in that period, or figures typed inconsistently, inflate the totals. Narrow the period, or keep one assessment per item per period.

Common questions

Does xMatix calculate NRV for me?

No. There is no screen or scheduled process that calculates NRV or creates assessments. You estimate the selling price and costs, work out NRV and the write-down, and enter them on the form. The form saves the figures as typed, without checking that they add up. The one figure xMatix uses is Outstanding Write Down, which the Valuation Statement subtracts from cost. Keep your working papers with the close file so that an auditor can trace each assessment back to its estimate.

Does closing the period post the write-down journal?

No. Closing a fiscal period changes its status and does nothing else (see Period close). Assessments create no journals, so the general ledger shows the write-down only if you post a manual journal yourself. Use the assessment's Write Down This Run or Reversal This Run as the journal amount, and date the journal on the assessment's As Of Date so it falls in the right period.

Can I write down a whole group of similar items at once?

Not in a way the statements use. You can record an Item Group on an assessment for reference, but the Valuation Statement only reads assessments that name an item. If your policy measures NRV for a group of similar items, share the group's write-down across its items. Then record one assessment per item, and use the Grouping field to note that it came from a group test.

Why does a September statement still show the old value after I recorded an October assessment?

Because valuations are date-aware. Each statement date uses the latest assessment dated on or before it. The October assessment applies from 31 October onwards, and September keeps the earlier one, so the history stays as it was reported.

Related topics

• Inventory valuation and costing
• Accounting books
• Journals
• Period close
• Inventory period balances
• Dashboards
• Inventory NRV Assessment — entity reference