The primary basis of accounting for inventories is cost. A departure from the cost basis of pricing inventory is required where there is evidence that when the goods are sold in the ordinary course of business, their
A) selling price will be less than their replacement cost.
B) replacement cost will be more than their net realizable value.
C) future utility will be less than their cost.
D) cost will be less than their replacement cost.

Question

Quizplus · Accepted Answer

The primary basis for accounting for inventories is indeed cost, but a departure from this basis is required when there is evidence that the future utility (which can be interpreted as the net realizable value or the eventual selling price) of the inventory items will be less than their cost. This is to recognize any impairment in value and is consistent with the conservatism principle in accounting, which dictates that losses should be recognized when they are anticipated.

The Primary Basis of Accounting for Inventories Is Cost