The lower of cost or net realizable value rule is used due to the conservatism constraint,and therefore an inventory calculation may result in a departure from the historical cost principle.

Question

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The lower of cost or net realizable value (LCNRV) rule is used to ensure that inventory is reported at the lower of its historical cost or net realizable value. This is in line with the conservatism constraint, which requires a cautious approach to financial reporting. As a result, the LCNRV rule may result in a departure from the historical cost principle. Therefore, Option A is correct.

The Lower of Cost or Net Realizable Value Rule Is