Lower-of-cost-or-market rule

Reference no: EM13953429

Apply the lower-of-cost-or-market rule to the valuation of inventory.

The principle of conservatism in accounting may warrant a departure from historical cost. This departure is known as the lower-of-cost-or-market rule (LCM).
Under LCM, the historical cost of inventory is compared with its replacement cost. If the replacement cost is lower, the Inventory account is reduced and a loss is recognized.

Reference no: EM13953429

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