Which of the following represents the best justification for the departure from the historical cost principle that results when lower-of-cost-or-market is used?
A) It is easier to keep track of market value than it is to keep track of cost as market value is available from any supplier.
B) Cost loses its relevance for the determination of cost of goods sold if the cost of inventory has been incurred in an earlier accounting period.
C) The balance sheet valuation of inventory is the most important consideration in the preparation of financial statements.
D) The loss in utility that results from a decline in the market value of inventory should be charged against revenues in the period in which it occurs.

Question

Quizplus · Accepted Answer

The lower-of-cost-or-market method allows for the recognition of a loss in utility (value) of inventory when its market value declines below its cost. This approach ensures that financial statements reflect the current economic reality, matching the loss to the period in which it occurs, rather than waiting until the inventory is sold. This principle enhances the relevance and reliability of financial information by acknowledging that the historical cost may no longer be the most accurate reflection of an asset's value.

Which of the Following Represents the Best Justification for the Departure