If a unit of inventory has declined in value below original cost, but the market value exceeds net realizable value, the amount to be used for purposes of inventory valuation is
A) net realizable value.
B) original cost.
C) market value.
D) net realizable value less a normal profit margin.

Question

Quizplus · Accepted Answer

According to the lower of cost or market rule in accounting, when the market value of inventory is lower than its original cost, the inventory should be written down to its market value. However, if the market value exceeds the net realizable value, the inventory should be valued at the net realizable value. This ensures that inventory is not overstated on the balance sheet.

If a Unit of Inventory Has Declined in Value Below