The Lower of cost and net realizable value (LC&NRV)rule sometimes causes the book value of inventory to be lowered below cost but will never cause the book value of inventory to be raised above cost.

Question

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The LC&NRV rule dictates that inventory should be reported at the lower of its cost or net realizable value. If net realizable value is lower than cost, the inventory should be written down to its net realizable value, thereby reducing its book value below cost. However, the rule does not allow inventory to be written up above its cost, as that would overstate the value of the inventory on the balance sheet.

The Lower of Cost and Net Realizable Value (LC&NRV)rule Sometimes