Multiple Choice
The lower of cost or market basis of valuing inventories is an example of which accounting principle?
71
views
5. Inventory
Lower of Cost or Market
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
A company has inventory with a historical cost of \$50,000. At year-end, the replacement cost is \$44,000, the net realizable value is \$46,000, and the net realizable value less a normal profit margin is \$42,000. What is the amount of the lower-of-cost-or-market (LCM) write-down that should be recognized?
A
\$8,000
B
\$0
C
\$6,000
D
\$4,000
Verified step by step guidance1
Step 1: Understand the lower-of-cost-or-market (LCM) rule. This accounting principle requires inventory to be reported at the lower of its historical cost or market value. Market value is determined as the middle value among replacement cost, net realizable value (NRV), and net realizable value less a normal profit margin.
Step 2: Identify the relevant values provided in the problem: historical cost (\
7:09mWatch next
Master Lower of Cost or Market with a bite sized video explanation from Brian
Start learningRelated Videos
Related Practice
Lower of Cost or Market practice set
Problem sets built by lead tutorsExpert video explanations