What is the definition of Net Realisable Value?

Net Realisable Value (NRV) is a crucial accounting concept, particularly in asset valuation, and it is defined as the estimated selling price of an asset in the ordinary course of business, minus any costs of completion, disposal, and transportation. This value represents the expected cash inflow from the sale of an asset when it is no longer being used or is being liquidated.

The chosen answer describes a cautious approach to asset valuation. Evaluating assets at their lowest estimated value allows for conservative financial reporting, aligning well with the principles of prudence in accounting. This ensures that assets are not overstated on the balance sheet and potential losses are recognized in a timely manner.

The other definitions do not align with the true meaning of Net Realisable Value. The maximum probable sale price of an asset implies a higher expectation than what may realistically be attainable, which does not consider costs associated with selling the asset. The average value of stock in the market refers to market valuation rather than a specific asset's realizable value. Lastly, the description of selling price minus production costs does not capture the full essence of NRV, as it fails to account for additional costs that must be deducted to reach the net realizable figure.