The inventory writedown incurred from applying the LCM rule to inventory is
A)not reflected on the Statement of Financial Position.
B)an adjustment to cost of goods sold.
C)not reflected on the Statement of Income.
D)not considered a permanent loss.

Question

Quizplus · Accepted Answer

The inventory writedown incurred from applying the LCM (Lower of Cost or Market) rule to inventory is considered an adjustment to cost of goods sold. This means that it is reflected on the Statement of Income as a reduction in gross profit. It is not considered a permanent loss because if the market price of the inventory increases in the future, the inventory can be sold at a higher price, resulting in a higher gross profit. However, it is important to note that the inventory writedown is not reflected on the Statement of Financial Position, as it only affects the income statement.

The Inventory Writedown Incurred from Applying the LCM Rule to Inventory