Question

Why do accountants criticize the practice of carrying inventories at estimated net realizable values?
A) The costs of producing the products are usually estimates.
B) There is usually no clearly defined realizable value for any inventories.
C) In effect, this practice recognizes income before sales are made.
D) It will result in higher cost of goods sold and lesser profits.

Answer 1

Answer: The correct answer is option "C" - "In effect, this practice recognizes income before sales are made.".

Explanation: Accountants criticize the practice of taking inventories to estimated net realizable values because by applying this method the goods that enter the inventory are recorded at their possible sales value, so that result would be recognized before sales are actually realized.