The floor to be used in applying the lower-of-cost-or-market method to inventory is determined as the
A) net realizable value.
B) net realizable value less normal profit margin.
C) replacement cost.
D) selling price less costs of completion and disposal.

Question

Quizplus · Accepted Answer

The floor in the lower-of-cost-or-market method is determined as the net realizable value less a normal profit margin. This ensures that inventory is not stated at a value lower than what it can generate in terms of revenue minus the profit margin, providing a conservative estimate of inventory value.

The Floor to Be Used in Applying the Lower-Of-Cost-Or-Market Method