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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