The lower of cost and net realizable value basis of valuing inventories ensures that inventories are
A) valued at their current cost.
B) not undervalued.
C) monitored on an ongoing basis as to their value relative to their cost.
D) valued at their selling price.

Question

Quizplus · Accepted Answer

The lower of cost and net realizable value (NRV) basis of valuing inventories ensures that inventory is valued at the lower of its historical cost or its estimated selling price minus any costs to complete and sell. This method requires ongoing monitoring of both the cost and the net realizable value to ensure that inventory is not stated at an amount higher than what it is expected to realize upon sale.

The Lower of Cost and Net Realizable Value Basis of Valuing