Can both Net Realisable Value (NRV) and Historical costs be combined for valuation purposes?

The correct answer highlights that both Net Realisable Value (NRV) and historical costs can be used for valuation purposes, but not necessarily combined in the same instance. In accounting practices, NRV is often utilized for assessing the value of inventory, particularly when it’s lower than the cost of purchasing or producing the product. This ensures that the financial statements reflect the most accurate value of inventory that can realistically be recovered through sale.

Historical cost, on the other hand, refers to the original monetary value of an asset at the time of purchase or production, and it provides a reliable baseline since it is verifiable and based on actual transactions.

In instances where costs exceed NRV, businesses may opt to report the asset at NRV to avoid overstating the value of their assets. Therefore, although they are distinct methodologies, they can co-exist within the same financial understanding, where one may inform decisions about when the other should be applied.

Utilizing both methods allows for a comprehensive view of an asset's valuation, adapting to the current market conditions while honoring the historical investment made in the asset.