The logic behind the lower-of-cost-or-market rule is:
A)Inventory gradually becomes obsolete.
B)Inventory that is unsalable should be written down to zero (or its scrap value).
C)An asset is not worth more than it would cost the owner to replace it.
D)Inventory that is unsalable should be written down to its replacement cost.

Question

Quizplus · Accepted Answer

The lower-of-cost-or-market rule aims to value inventory at the lower of its cost or market value. This means that an asset should not be valued higher than what it would cost the owner to replace it, which is the logic behind choice C. The rule also addresses potential obsolescence of inventory and requires that it be written down to its replacement cost if it is unsalable, but these reasons are not the primary logic behind the lower-of-cost-or-market rule.

The Logic Behind the Lower-Of-Cost-Or-Market Rule Is