The accounting rule,"lower of cost or market" could more clearly be stated
A)lower of the cost of inventory when purchased or the sale price of the inventory item at year-end
B)lower of the cost of inventory when purchased or the cost to replace the inventory item at year-end
C)lower of the cost of inventory when sold or the cost to replace the inventory item at year-end
D)lower of the cost of inventory when purchased or the cost to replace the inventory item at mid-year

Question

Quizplus · Accepted Answer

The "lower of cost or market" accounting rule states that inventory should be valued at the lower cost of purchase or cost to replace at the end of the accounting period. The market value is equivalent to the cost to replace. Therefore, option B is the best choice. Option A is incorrect because it compares the cost of purchase to the sale price, which is not relevant to the rule. Option C is incorrect because it compares the cost of sale to the cost to replace, which is not relevant to the rule. Option D is incorrect because it only considers the cost to replace at mid-year, whereas the rule applies to the entire accounting period.

The Accounting Rule,"lower of Cost or Market" Could More Clearly