Using the direct reduction method of reporting a holding loss for lower-of-cost or NRV valuation of inventory, any holding loss is merged into the cost of goods sold amount.

Question

Quizplus · Accepted Answer

In the direct reduction method, any holding loss on inventory is directly deducted from the cost of goods sold, resulting in a higher cost per unit and a lower profit margin. Therefore, the holding loss is merged into the cost of goods sold amount.

Using the Direct Reduction Method of Reporting a Holding Loss