The lower of cost or market rule for inventory
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Explain why the lower of cost or market rule is used to value inventory.
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Solution Summary
The explanation provides the theoritical basis and the FASB basis. Then two paragraphs explain the practical application of the rules.
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The concept of cost is constant throughout most of accounting processes, but the rule for lower of cost or market was not instituted until ARB No. 43 and amended in FASB Statement no. 151 issued November 2004.
The summary of the statement says:
This Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material ...
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