Lower of cost and net realizable value applies to the write-down of inventory values when market value exceeds cost.Why does this rule not allow for write-ups in inventory value?

Question

Quizplus · Accepted Answer

The lower of cost and net realizable value rule is based on the conservatism principle, which requires companies to be cautious and avoid overstating assets. Writing up inventory to market value would be inconsistent with this principle and could result in overstatement of assets. Therefore, write-ups in inventory value are not allowed under this rule.

Lower of Cost and Net Realizable Value Applies to the Write-Down