When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term "market"?
A) Net realizable value
B) Net realizable value less a normal profit margin
C) Current replacement cost
D) Discounted present value

Question

Quizplus · Accepted Answer

"Market" in the lower-of-cost-or-market method refers to the current replacement cost of the inventory. This means that if the current replacement cost of the inventory is lower than its original cost, the inventory must be written down to its lower market value. Options A and B relate to calculating the net realizable value which is not relevant to the lower-of-cost-or-market method. Option D refers to discounted present value which is not relevant to the inventory valuation method.

When Valuing Raw Materials Inventory at Lower-Of-Cost-Or-Market, What Is the Meaning