Final answer:
Net realizable value predicts the future cash inflows by valuing assets at their potential selling price minus any costs, offering a realistic picture of an asset's contribution to future revenue.
Step-by-step explanation:
Reporting assets at net realizable value helps predict the future cash inflows from the sale of assets. It considers the estimated selling price in the ordinary course of business, minus reasonably predictable costs of completion, disposal, and transportation. This method provides a realistic evaluation of an asset's current value and its potential contribution to a company's future revenue. For instance, collectibles such as paintings, fine wine, jewelry, antiques, or even baseball cards, which are tangible assets, can be reported at net realizable value. These items may offer service returns (e.g., aesthetic pleasure from artwork) and could potentially be sold for a higher price in the future. However, as the prices of collectibles can be unpredictable and do not guarantee a high rate of return over time, valuing them at net realizable value is a cautious approach to reflect their true contribution to a company's financial state.