When applying the lower of cost or market rule to the valuation of inventory, the allowance method is considered preferable to the direct method because

Question

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The allowance method reports the inventory loss or loss recovery in a separate income statement account, which provides better transparency and disclosure for financial statement users. The direct method, on the other hand, simply reduces the inventory value on the balance sheet without providing any information about the cause of the write-down. Therefore, the allowance method is considered preferable for inventory valuation.

When Applying the Lower of Cost or Market Rule to the Valuation