The lower-of-cost-and-net-realisable-value rule demonstrates accounting conservatism in action.

Question

Quizplus · Accepted Answer

The lower-of-cost-and-net-realisable-value (LCNRV) rule requires that inventory values be reported at the lower of their cost or net realisable value. This rule is an example of accounting conservatism, which requires that accounting treatments and estimates be guided by prudence and caution. By valuing inventory at the lower of cost or net realisable value, the LCNRV rule reflects a conservative approach to reporting assets on the balance sheet, as it ensures that inventory values are not overstated.

The Lower-Of-Cost-And-Net-Realisable-Value Rule Demonstrates Accounting Conservatism in Action