Which aspect does Net Realisable Value focus on in asset valuation?

Net Realisable Value (NRV) is primarily concerned with assessing the value of an asset based on the amount that can be realized from its sale, less any costs associated with the sale. This concept inherently involves a cautious approach, often focusing on the least optimistic value that reflects a conservative assessment of the asset's worth.

When determining NRV, it takes into account the expected selling price of the asset based on current market conditions, while also considering costs such as transportation, commissions, and any potential reductions in value that could occur. This is why focusing on the least optimistic value aligns perfectly with the principles of NRV.

The approach taken in calculating NRV is grounded in prudence, emphasizing the need for caution in asset valuation to avoid overstating the value of assets on financial statements. This is a critical aspect in accounting, as it ensures that assets are not valued above what is realistically attainable, thereby providing a more accurate picture of a company's financial health.