Application of the lower-of-cost-or-net realizable value rule results in inconsistency because a company may value inventory at cost in one year and at net realizable value in the next year.

Question

Quizplus · Accepted Answer

The lower-of-cost-or-net realizable value rule requires a company to value inventory at whichever is lower - its cost or its net realizable value (NRV). This can lead to inconsistency if the inventory is valued at cost in one year and at NRV in the next year, depending on changes in market conditions or other factors that affect the inventory's value. This can distort the company's financial statements and make it difficult to compare results from one period to another.

Application of the Lower-Of-Cost-Or-Net Realizable Value Rule Results in Inconsistency