Question

In applying LCM, market cannot be:

A. Less than net realizable value minus a normal profit margin.
B. Net realizable value less reasonable completion and disposal costs.
C. Greater than net realizable value reduced by an allowance for normal profit margin.
D. Less than cost.

Answer 1

Answer:

The correct option is A,market cannot be less than net realizable value minus a normal profit margin

Explanation:

In determining the lower of cost and market value,the cost of the item of inventory is compared with market facing prices.

The market facing prices are the net realizable value and replacement of the item,in essence lower of net realizable and replacement cost is compared with cost of the  item in order to determine the value at which the inventory is to be valued.

Overall,the lower of net realizable and replacement cost should not be lower than the net realizable value minus a normal profit margin