Answered: Explain how to calculate net realizable…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Explain how to calculate net realizable value.

Expert Solution

Step 1

Net realizable value refers to the total amount of money which a company will get from selling the asset after deducting the losses. It is the amount of money which is finally recovered by the company from an asset after deducting all the losses.

Step 2

Calculation of net realizable value:

The net realizable value can be calculated by using the following formula:

Net realizable value of the account receivable:

Calculate the total amount of account receivable.
Calculate the amount of allowance for uncollectible accounts. It is the amount which a company will not receive from its debtors. It is bad debts for the company.
Deduct the amount of allowance for uncollectible accounts from the total account receivable.
The balance amount is the net realizable value of account receivables.

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