 Hello, in this lecture we will define net realizable value. According to fundamental accounting principles, while 22nd edition, the definition of net realizable value is, expected selling price value of an item minus the cost of making the sale. So when we're thinking about the net realizable value, we're thinking about the sales price, but we're also thinking about those costs that will be involved within making that sale, including the selling costs. Net realizable value often being used when considering the valuation of inventory, whether or not we should be lowering the value due to the lower of cost or market principle or conservativity principle. Let's take a look at an example. The example being the selling of inventory. In this case, forklifts, we will calculate the net realizable value starting with the sales price. We're going to reduce the sales price by cost of completion. This would be cost that would be needed to put that forklift on the market. So if there's anything we need to do to the forklift before we could sell it, we should include those costs here and take them out of the sales price to calculate the net realizable value. We're also going to remove the sales cost that would be needed in order to make that sale. That would then give us the net realizable value. Again, the net realizable value is often useful, often calculated when trying to decide whether we should value the inventory or market down from the original cost that we purchased it from. So we have this conservativity principle saying that we want to really mark our inventory at the lower of cost or market. And the question is how are we going to determine what that market price is? We could take this method into consideration when making that judgment.