When would the replacement cost of inventory be used as the market value under the lower-of-cost-or-market method?
A) Always
B) When replacement cost is above net realizable value
C) When replacement cost is below net realizable value and above net realizable value less normal profit margin
D) When replacement cost is below net realizable value less normal profit margin

Question

Quizplus · Accepted Answer

The lower-of-cost-or-market method compares the cost of inventory with its market value, which is defined as the current replacement cost, but not exceeding the net realizable value less normal profit margin. Therefore, the replacement cost can only be used as the market value if it is below the net realizable value, but above the net realizable value less normal profit margin.

When Would the Replacement Cost of Inventory Be Used as the Market