IAS 2 Inventories was first issued in October 1975, and most recently revised in December 2003. its most important principle is that inventories be measured at lower of their cost and net realizable value.
Net realizable value (NRV) is calculated as the expected sale proceeds less any selling cost to be incurred in achieving the sale proceed. If there is further work to carried out in order to bring the goods into saleable condition, these cost should also be deducted.
As net realizable value (NRV) is an estimate, care should be taken that the estimate is based on reliable evidence. If there are number of possible ways of realizing the value of inventory, it is acceptable to select the most advantageous method when estimating net realizable value (NRV).
Net realizable value (NRV) is reviewed at each reporting date, and a revised value is recorded into books if the net realizable value estimates changes. In no case can the revision cause the goods to be recorded at value higher than their cost.