When businesses apply the lower of cost and net realizable value rule on an item by item basis, they will report the lowest inventory value possible.

Question

Quizplus · Accepted Answer

This is because the lower of cost and net realizable value rule requires businesses to report the value of inventory at the lower of its cost or its net realizable value. By applying this rule on an item by item basis, businesses will report the lowest inventory value possible.

When Businesses Apply the Lower of Cost and Net Realizable