A company should abandon the historical cost principle when the future utility of the inventory item falls below its original cost.

Question

Quizplus · Accepted Answer

According to the principle of conservatism, if the future utility of an inventory item falls below its original cost, the company should write down the value of the inventory to its estimated net realizable value, which may be lower than the historical cost. This means that the company should abandon the historical cost principle in favor of the lower net realizable value.

A Company Should Abandon the Historical Cost Principle When the Future