If the market value of inventory is less than its cost, then application of the lower-of-cost-or-market rule would:

Question

Quizplus · Accepted Answer

The lower-of-cost-or-market rule, when the market value is less than the cost, leads to writing down the inventory to its market value. This results in a decrease in earnings due to the recognized loss and a decrease in the current ratio because assets (inventory) are reduced without a corresponding decrease in current liabilities.

If the Market Value of Inventory Is Less Than Its