When the replacement cost of an item is below its original purchase cost,it is necessary to value the inventory at market price in order to reflect the lower current value in the firm's financial records.

Question

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When the replacement cost of an item is lower than its original purchase cost, the inventory should be valued at market price to accurately reflect the current value in the financial records. This is known as the lower of cost or market (LCM) rule in accounting.

When the Replacement Cost of an Item Is Below Its