Inventory
Inventory
Valuation
Decision
Making
using
inventory
Ratios
VALUATION OF ENDING INVENTORY
Lower of Cost or Market
• Historical cost
• Current replacement cost (market value)
Inventory is
adjusted to be the
lesser of:
• Record a loss and reduce inventory
If market value is
less than cost:
• No entry needed
If cost is less than
market:
Application of conservatism principle
Lower-of-Cost-or-Market Rule. Under Armour, Inc., p
$3,000,000 for inventory. By its year-end, the inventory
be replaced for $2,000,000. Under Armour’s year-end
balance sheet must report this inventory at the LCM val
$2,000,000.
VALUATION OF ENDING INVENTORY
Lower of Cost or Market - Example
