Which statement below is TRUE regarding the lower of cost or market rule?

Question

Quizplus · Accepted Answer

The lower of cost or market rule requires that inventory be reported on the balance sheet at the lower of the replacement value or historical cost. This means that if the market value of the inventory falls below its historical cost, the inventory must be written down to the lower market value. The LCM rule is based on the principle of conservatism, which requires accountants to be cautious and always report assets at their lowest possible value. Therefore, options B and C are incorrect. Option D is partially correct as the LCM rule is indeed based on the cost principle, but it does not fully capture the essence of the rule.

Which Statement Below Is TRUE Regarding the Lower of Cost