When the replacement cost of an item is below its original purchase cost, it is necessary to value the inventory at net realizable value in order to reflect the lower current value in the firm's financial records.

Question

Quizplus · Accepted Answer

Net realizable value is the estimated selling price of inventory less any cost of completion, disposal, and transportation. When the replacement cost is lower than the original purchase cost, it is necessary to value the inventory at this lower net realizable value to accurately reflect the value of the inventory on the firm's financial records.

When the Replacement Cost of an Item Is Below Its