When the market value of inventory items has declined below its cost, which method would be the most appropriate in complying with GAAP?
A) Lower of Cost or market
B) LIFO
C) Retail
D) Gross Profit

Question

Quizplus · Accepted Answer

According to GAAP, if the market value of inventory items has declined below its cost, the most appropriate method would be the Lower of Cost or market method. This method allows companies to reduce the value of inventory to the lower of its cost or its current market value. This is a conservative approach as it recognizes losses when they occur and avoids overstating inventory. LIFO, Retail, and Gross Profit methods do not directly address inventory that has declined in value.

When the Market Value of Inventory Items Has Declined Below