If the resale price of an item in inventory decreases below its acquisition or manufacturing cost,when should the loss in value be recognized?
A) Immediately
B) When the item is replaced
C) When the item is sold
D) None of these

Question

Quizplus · Accepted Answer

The loss in value should be recognized immediately when the resale price of an item in inventory decreases below its acquisition or manufacturing cost. This is in accordance with the principle of conservatism, which requires recognition of losses as soon as they are foreseeable. Waiting until the item is replaced or sold would not accurately reflect the true financial position of the company. Choosing "none of these" is incorrect because recognize the loss is necessary, and not recognizing it would be a violation of GAAP.

If the Resale Price of an Item in Inventory Decreases