When the market price or current replacement price of an inventory item declines below the actual price paid for the item, a company is permitted to use the lower-of-cost-or-market rule.

Question

​When the market price or current replacement price of an inventory item declines below the actual price paid for the item, a company is permitted to use the lower-of-cost-or-market rule.

Quizplus · Accepted Answer

The lower-of-cost-or-market rule allows companies to adjust the value of their inventory to reflect the lower of either the original cost or the current market price, ensuring that the inventory is not overstated on the financial statements.

​When the Market Price or Current Replacement Price of an Inventory

When the Market Price or Current Replacement Price of an Inventory