New Vehicle Inventory NRV Write-Down
Writing down new vehicle inventory to net realizable value when market prices fall below cost.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Inventory Write-Down Expense (New Vehicles) | Expense (+) | 95,000.00 | - |
| New Vehicle Inventory (Write-Down) | Asset (-) | - | 95,000.00 |
💡 Accountant's Note
New vehicle inventory is carried at the lower of cost and net realizable value (IAS 2). When market prices decline below the dealer's cost plus floor plan interest (the total cost of carrying the vehicle), a write-down is required. This is particularly relevant for large SUVs during fuel price spikes, electric vehicles with rapid price cuts, or any model with excess market supply.
Practitioner & Systems Framework
💻 ERP Architecture
NRV assessment is performed periodically (typically quarterly) by comparing each vehicle's total carrying cost (invoice + freight + prep + accrued floor plan interest) to the current market selling price (from JD Power, Edmunds True Market Value, or the dealer's own recent transaction data for that model). Vehicles where the market selling price is below total carrying cost require a write-down to NRV. The DMS does not automatically perform NRV testing — this requires a manual analysis combining DMS inventory data with external market pricing. Manufacturer price increases or new incentive programs can restore NRV above cost, allowing write-down reversals (IAS 2 permits reversal to the lesser of original cost and revised NRV).
⚠️ Audit Flags
Auditors test NRV for models with declining market values, excess production (high days-supply nationally), or significant manufacturer price cuts. Tesla's frequent price adjustments created systematic NRV issues for Tesla dealers globally. Test market pricing sources for appropriateness — should reflect the actual market in the dealer's local area, not national average. Confirm that floor plan interest accrued to date is included in the total cost basis. Test that NRV write-down reversals (if prices recover) are capped at the original cost.
📄 Required Documentation
New vehicle inventory aging and cost per VIN, market price evidence per model (JD Power, Edmunds, or comparable recent transaction data), NRV calculation (market price - estimated selling costs vs. total carrying cost), write-down journal by VIN, manufacturer price change notifications, and write-down reversal assessment when prices recover.
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