AC300 DB10

Applying Lower of Cost or Market

You have been asked by the financial vice president (VP) to develop a short presentation on the lower of cost or market method for inventory purposes. The financial VP needs to explain this method to the president because it appears that a portion of the company's inventory has declined in value.

The financial VP asks you to answer the following questions.

1. What is the purpose of the lower‐of‐cost‐or‐market method?

2. What is meant by “market”? ( Hint: Discuss the ceiling and floor constraints.)