Lower of Cost or Market (LCM)

Lower of Cost or Market (LCM)

1. At the end of each period, inventory is measured at the lower of cost or market.

2. Market = Current replacement cost

3. If current replacement cost > Net realizable value (NRV) of inventory, then
Market = Net realizable value (NRV) of inventory

4. If current replacement cost < (NRV – Normal profit margin), then
Market = NRV – Normal profit margin

5. Net realizable value (NRV) = Selling price – Costs to complete and sell

 

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