Tangible personal property of the following:
1. held for sale –> merchandise, finished goods
2. in the course of production –> work in process
3. to be consumed in the production –> raw materials

Initial measurement
Inventories are measured at cost when first recognized

Cost flow assumptions
One of the following assumptions is made to determine the cost of inventory:
1. First-in First-out (FIFO): Items that came in first are sold first
2. Last-in First-out (LIFO): Items that came in last are sold first
3. Average method: Weighted average cost is applied as unit cost

Retail inventory method is
–> allowed in some situations

Subsequent measurement
If the market is lower than the cost
–> inventory is measured at the market
–> “Lower of Cost or Market” (LCM)

1. The market refers to current replacement cost
2. If net realizable value (NRV) is lower that current replacement cost
–> NRV is the market
3. If current replacement cost is lower than (1)
–> (1) is the market
(1) net realizable value – normal profit margin

Lower of Cost or Market (LCM) summary
(a) current replacement cost
(b) net realizable value
(c) net realizable value – normal profit margin
If (c) < (a) < (b) –> market = (a)
If (c) < (b) < (a) –> market = (b)
If (a) < (c) < (b) –> market = (c)


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