What does the term "net realizable value" exclude?

The term "net realizable value" (NRV) refers to the estimated selling price of an asset in the ordinary course of business, minus any estimated costs necessary to make the sale. It essentially measures the amount expected to be realized from the sale of an asset after accounting for costs that must be incurred to sell it.

In this context, NRV would include costs directly related to completing the product and any estimated selling expenses that are necessary for the sale. However, it explicitly excludes all further costs that are not directly necessary to realize the asset's value. This includes costs that may arise after the asset is available for sale or any costs that do not contribute to the closing of the transaction.

Thus, the correct answer emphasizes that NRV does not take into account all further costs related to the item, as these costs do not influence the net realizable amount expected from selling the asset at market value. This core understanding helps in accurately assessing the value and potential profitability of inventory or other assets before realizing the sale.