What is the maximum amount at which inventory can be valued when the goods have experienced a permanent decline in value?

Question

Quizplus · Accepted Answer

According to GAAP (Generally Accepted Accounting Principles), inventory must be valued at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less estimated costs of completion and disposal. When goods have experienced a permanent decline in value, they are no longer expected to sell at their historical cost, and therefore must be valued at their net realizable value. Option C is the only choice that reflects this accounting principle. Option D is incorrect because it suggests reducing net realizable value further by a normal profit margin, which is not necessary or appropriate.

What Is the Maximum Amount at Which Inventory Can Be