Pricing Policy
Inventories are like your secret snack stash—you’ve got to be smart about how you value them. In accounting, we play it safe by valuing them at the lower of cost or net realizable value (NRV). This means if your snacks (or inventory) lose value before you can sell them, you’ve already accounted for the loss. "Cost" can mean different things depending on how your company does the math, like using FIFO (First In, First Out) or Weighted Average.
Now, don’t confuse NRV with Fair Value Less Costs to Sell (FVLCTS). NRV is based on what you usually sell your stuff for, shaped by your pricing strategy—whether you're charging a premium or going for bargain prices. FVLCTS, though, is just the market price, which can be a bit unpredictable. Your pricing strategy is key—not just for valuing inventory but for your company’s success. So, pick a good strategy and stick to it, or you might find yourself in a bit of a pickle!
By CA L.Muralidharan and CPA L.Mukundan
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