Question
In: Finance
Explain the lower-of-cost-or-market basis of accounting for inventories.
Explain the lower-of-cost-or-market basis of accounting for inventories.
Solutions
Expert Solution
Companies use the the Lower of cost or market basis method of accounting for inventories.
The companies should use the lower of original cost or the market value/replacement cost of the inventory , which means that the inventory should be recorded at a lower value when comparing the cost at which it was initially purchased with the replacement costs of the inventory. This is done, because it does not make adequate sense to report an inventory at a price which is higher than what the inventory can recover.
Suppose, a retailer buys $20,000 worth of inventories, which is now worth $2000, the retailer has suffered a loss of $18,000.This method protects retailers form the loss although other inventory methods like LIFO and FIFO, would not recognise this loss as the inventory is unsold at this pojnt of time.
The LCM method will recognise this loss as a debiting the loss account by a figure of $18,000 and the inventory account should be credit by $18,000.
When the cost is equal to the market value there is no loss or gain recognised, when the cost is greater than the market value a loss is then recognised.
jeff jeffy answered 1 year agoRelated Solutions
Determine the lower of cost or market inventory valuation on the basis of the following facts:
Determine the lower of cost or market inventory valuation on the basis of the following facts: quantity, 1500 units; cost per unit, $4.45; replacement cost, $4.40; selling price, $5.75; cost to complete and sell, $65; normal profit, $1.00
Inventories Inventories on the Consolidated Balance Sheets are valued at the lower of cost and net...
Inventories
Inventories on the Consolidated Balance Sheets are valued at the
lower of cost and net realizable value on a weighted-average cost
basis. The Company reduces the carrying value of inventory through
a lower of cost and net realizable value adjustment, the impact of
which is reflected in cost of sales, exclusive of depreciation and
amortization, on the Consolidated Statements of Operations and
Comprehensive Income (Loss). The lower of cost and net realizable
value adjustment is based on the Company’s...
Under U.S. GAAP, inventories are reported on the balance sheet at lower−of−cost−or−market. This is an example...
Under U.S. GAAP, inventories are reported on the balance sheet
at lower−of−cost−or−market. This is an example of:
A. consistency principle
B. historical cost principle
C. conservatism principle
D. full disclosure principle
Lower-of-Cost-or-Market Method On the basis of the following data: Item Inventory Quantity Cost per Unit Market...
Lower-of-Cost-or-Market MethodOn the basis of the following data: $$ \begin{array}{lccc} \text { Item } & \text { Inventory Quantity } & \text { Cost per Unit } & \begin{array}{l} \text { Market Value per Unit } \\ \text { (Net Realizable Value) } \end{array} \\ \hline \text { JFW1 } & 6,330 & \$ 10 & \$ 11 \\ \text { SAW9 } & 1,140 & 36 & 34 \end{array} $$Determine the value of the inventory at the lower-of-cost-or-market by applying...
Lower-of-Cost-or-Market Inventory On the basis of the following data: Product Inventory Quantity Cost per Unit Market...
Lower-of-Cost-or-Market Inventory
On the basis of the following data:
Product
Inventory
Quantity
Cost per
Unit
Market Value per Unit
(Net Realizable Value)
Model A
13
$198
$223
Model B
42
63
56
Model C
36
126
144
Model D
13
241
237
Model E
33
144
152
Determine the value of the inventory at the lower of cost or
market. Assemble the data in the form illustrated in Exhibit 9.
Inventory at the Lower of Cost or Market
Product
Total...
Lower-of-Cost-or-Market Inventory On the basis of the following data: Product Inventory Quantity Cost per Unit Market...
Lower-of-Cost-or-Market Inventory
On the basis of the following data:
Product
Inventory
Quantity
Cost per
Unit
Market Value per Unit
(Net Realizable Value)
Model A
12
$106
$102
Model B
45
84
70
Model C
36
254
243
Model D
31
85
88
Model E
41
132
148
Determine the value of the inventory at the lower of cost or
market. Assemble the data in the form illustrated in Exhibit 9.
Inventory at
the Lower of Cost or Market
Product
Total...
Lower-of-Cost-or-Market Inventory On the basis of the following data, determine the value of the inventory at...
Lower-of-Cost-or-Market Inventory
On the basis of the following data, determine the value of the
inventory at the lower of cost or market. Assemble the data in the
form illustrated in Exhibit 10.
Product
Inventory
Quantity
Cost Per
Unit
Market Value per Unit
(Net Realizable Value)
Class 1:
Model A
19
$299
$295
Model B
23
78
86
Model C
44
237
241
Class 2:
Model D
9
78
83
Model E
9
244
228
a. Determine the value of the...
Lower-of-Cost-or-Market Inventory On the basis of the following data, determine the value of the inventory at...
Lower-of-Cost-or-Market Inventory
On the basis of the following data, determine the value of the
inventory at the lower of cost or market. Assemble the data in the
form illustrated in Exhibit 10.
Product
Inventory
Quantity
Cost Per
Unit
Market Value per Unit
(Net Realizable Value)
Class 1:
Model A
10
$164
$144
Model B
20
253
269
Model C
47
48
33
Class 2:
Model D
26
48
37
Model E
35
49
37
a. Determine the value of the...
Lower-of-Cost-or-Market Inventory On the basis of the following data, determine the value of the inventory at...
Lower-of-Cost-or-Market Inventory
On the basis of the following data, determine the value of the
inventory at the lower of cost or market. Assemble the data in the
form illustrated in Exhibit 10.
Product
Inventory
Quantity
Cost Per
Unit
Market Value per Unit
(Net Realizable Value)
Class 1:
Model A
300
$140
$125
Model B
500
90
112
Model C
150
60
59
Class 2:
Model D
800
120
115
Model E
400
140
145
a. Determine the value of the...
Lower-of-Cost-or-Market Inventory On the basis of the following data, determine the value of the inventory at...
Lower-of-Cost-or-Market Inventory
On the basis of the following data, determine the value of the
inventory at the lower of cost or market. Assemble the data in the
form illustrated in Exhibit 10.
Product
Inventory
Quantity
Cost Per
Unit
Market Value per Unit
(Net Realizable Value)
Class 1:
Model A
32
$256
$251
Model B
8
94
79
Model C
18
178
194
Class 2:
Model D
23
247
263
Model E
34
98
77
a. Determine the value of the...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- 1. You must evaluate a proposal to buy a new milling machine. The base price is...
- Could you please write an article on Software Engineering Trends in about 300 words? Please, also...
- A)Given a generic array with ‘n’ items (not only integers). Give a solution for checking whether...
- Explain virtualization as a key technology in cloud computing environments, as well as the purpose of...
- A system is set up to take raw grading information from the console and calculate a...
- I have an 8 by 8 array that has values ranging from 1-64. I am wanting...
- The background information and instruction of the question is provided below, and i only asked for...
ADVERTISEMENT