Net realizable value represents the value of assets held as inventory, assuming these items are later sold. You use the fair market value to determine how much you could sell the items for, and subtract the costs associated with the sale. The difference results in the net realizable value.
Add the total fair market value of all inventory held by the company. This is the amount the company could sell its inventory for. As an example, take a toy company with 2,000 teddy bears in inventory that are sold for $15 each to consumers and 500 board games that are sold for $10 each: 2,000 bears x $15 + 500 games x $10= $35,000 total market value.
Add the costs associated with selling these assets. This would include, for example, the cost of completing unfinished goods and shipping expenses. Continuing the example, assuming the cost of distributing and selling a teddy bear is $5 and the cost of distributing and selling a board game is $6, the calculation would look like this: 2,000 bears x $5 + 500 games x $6= $13,000.
Subtract the costs associated with sales from the total market value to get the NRV. Finishing the example, NRV = $35,000 - $13,000 = $22,000.