When the net realizable value of inventory is lower than its cost, the inventory is written down to its net realizable value at the end of the period.

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This is because GAAP requires that inventory be reported at the lower of cost or net realizable value. If the net realizable value is less than the cost, the inventory must be written down to its net realizable value at the end of the period. This write-down is also known as an inventory impairment.

When the Net Realizable Value of Inventory Is Lower Than