Reporting inventory at the lower of cost or market provides a representationally faithful value of inventory; therefore, the application of the lower of cost or market rule is consistent with the materiality principle.

Question

Quizplus · Accepted Answer

The lower of cost or market rule is consistent with the conservatism principle, not the materiality principle. The conservatism principle guides accountants to choose the less optimistic estimate when faced with uncertainty, to avoid overstating assets and income. The materiality principle, on the other hand, concerns the significance of financial information's impact on decision-making, allowing entities to disregard trivial amounts that would not influence the decisions of users of financial statements.

Reporting Inventory at the Lower of Cost or Market Provides