The lower-of-cost-or-market rule implies that it is misleading to carry inventory at a cost that is in excess of its market value.

Question

Quizplus · Accepted Answer

The lower-of-cost-or-market rule requires that inventory is reported at the lower of its cost or market value, which prevents overvaluing of inventory that may be obsolete, damaged or have a decline in market value. Thus, it is true that carrying inventory at a cost that exceeds its market value is misleading.

The Lower-Of-Cost-Or-Market Rule Implies That It Is Misleading to Carry