LCNRVLower of Cost or Net Realisable Value

LCNRV stands for Lower of Cost or Net Realisable Value. It's the accounting rule that says: value each item of inventory at whichever number is smaller — what you paid for it, or what you can actually sell it for after deducting the cost to sell.

If a SKU cost £20 to land in your warehouse but you can only sell it for £15 net, the rule says you carry it on the books at £15. The £5 difference is recognised as a loss in the period you discover it, not when you eventually sell.

This is the principle that forces brands to write down dead and slow-moving stock instead of pretending the warehouse is full of value that doesn't exist.

How to calculate NRV

Net Realisable Value is the expected selling price minus the costs you'll incur to complete and sell the item:

NRV = Estimated selling price − Cost to complete − Cost to sell

For most finished goods the "cost to complete" is zero and "cost to sell" is marketplace fees, packaging, and any markdown needed to actually move the unit.

A worked example. You bought 1,000 units at £20/unit (£20,000 cost). They're slow-moving and you'd need to discount to £18 to clear, paying a 10% marketplace fee.

• NRV per unit = £18 − £1.80 = £16.20
• Cost per unit = £20
• LCNRV value = £16.20 (the lower)
• Inventory write-down = (£20 − £16.20) × 1,000 = £3,800

That £3,800 hits your P&L as an inventory write-down in the current period.

Why scaling brands keep getting caught by it

The rule is enforced at audit. By the time the auditor flags it, the loss has been building for months in the form of dead stock and slow-movers nobody wanted to write down voluntarily.

Three patterns repeat:

• Late-season fashion. You bought to MOQ, didn't sell through, and the new season has launched. Last season's stock has an NRV well below cost — but the write-down only happens when somebody runs the numbers.
• Discontinued lines. A SKU is being phased out. Net of the markdowns needed to clear, NRV is below cost. The right thing is to recognise it now, not wait.
• Damaged or expired inventory. Goods that can only be sold via clearance, jobbed out, or charitably donated. NRV is whatever the recovery channel pays.

LCNRV vs LCM (US GAAP)

In the US, the older rule was Lower of Cost or Market (LCM), where "market" was a more involved calculation around replacement cost with a ceiling and floor. ASU 2015-11 simplified that for most companies to LCNRV — bringing US GAAP into line with IFRS.

For UK and EU brands reporting under FRS 102 or IFRS, LCNRV has been the rule for years. Most scaling brands today operate under LCNRV.

When the write-down reverses

Under IFRS and FRS 102, if NRV recovers in a later period — say the SKU finds a new use case and demand comes back — the write-down can be partially reversed, up to the original cost. Under US GAAP (ASC 330), write-downs cannot be reversed.

In practice reversals are rare. Once you've written stock down, you've already made the decision that it isn't going to recover.

How LCNRV connects to inventory health

A high frequency of LCNRV write-downs is a symptom, not the actual problem. The problem upstream is some mix of: forecasts that ran hot, MOQ commitments that didn't reflect real demand, slow markdown decisions, or range complexity that's outrun the team's ability to manage it.

Fixing the write-downs means fixing the buying — not arguing with the auditor.