What is the appropriate treatment in an interim financial report for inventory that has market value below cost?
A) The loss should always be recorded in the interim period in which market value drops below cost.
B) The loss should be recorded in the interim period in which market value drops below cost if the loss is considered temporary.
C) The loss should be recorded in the interim period in which market value drops below cost if the loss is considered permanent.
D) The loss should be ignored for interim reporting purposes.
E) There is no loss to report.

Question

Quizplus · Accepted Answer

According to the lower of cost or market (LCM) method, when the market value of inventory drops below its cost, a loss should be recognized. If the loss is considered permanent, it should be recognized immediately in the interim period in which the market value drops below cost. Therefore, option C is the best choice.

What Is the Appropriate Treatment in an Interim Financial Report