7.06 - LOWER OF COST OR MARKET Flashcards
7.06 - LOWER OF COST OR MARKET
The original cost of an item of LIFO inventory is above its replacement cost. The item’s replacement cost is below
its net realizable value but is higher than its net realizable value minus a normal profit. Under the lower of cost or
market method for LIFO and retail method inventories, the inventory item should be valued at…
Original cost
Replacement cost
Net realizable value less normal profit margin
Net realizable value
Replacement cost
EXPLANATION:
LIFO and retail method inventories are valued at the lower of cost or market.
Market value is its replacement cost,
subject to an NRV ceiling and an NRV minus normal profit floor.
Because the replacement cost is below the ceiling and above the floor, the replacement cost is considered the market value.
The original cost is above the replacement cost, therefore the inventory should be valued at the lower of cost or market or the replacement cost.
7.06 - LOWER OF COST OR MARKET
The original cost of an item of LIFO inventory is above its replacement cost. The item’s replacement cost is below
its net realizable value but is higher than its net realizable value minus a normal profit. Under the lower of cost or market method for LIFO and retail method inventories, the inventory item should be valued at
Replacement cost
Net realizable value less normal profit
margin
Net realizable value
Original cost
Replacement cost
EXPLANATION:
LIFO and retail method inventories are valued at the lower of cost or market.
Market value is its replacement cost, subject to an NRV ceiling and an NRV minus normal profit floor.
Because the replacement cost is below the ceiling and above the floor, the replacement cost is considered the market value.
The original cost is above the replacement cost, therefore the inventory should be valued at the lower of cost or market or the replacement cost.
