If the current replacement cost of inventory is less than its historical cost,the business must adjust the inventory value.

Question

Quizplus · Accepted Answer

If the replacement cost of inventory is less than its historical cost, the business must adjust its value to reflect its current market value. This adjustment is done through the process of lower of cost or market (LCM) method, where the business recognizes a loss and reduces the inventory value on its balance sheet. Failure to do so would overstate the value of inventory and mislead investors, lenders, and other stakeholders.

If the Current Replacement Cost of Inventory Is Less Than