Purchase Solution

Lower-of-Cost-or-Market Rule (Method)

Not what you're looking for?

Ask Custom Question

Explain the reasoning behind the lower of cost or market rule being used to value inventory in everyday language.

Purchase this Solution

Solution Summary

This solution contains an explanation of the lower-of-cost-or market method (LCM). It also explains the reasoning behind as well as why the lower-of-cost-or-market rule is used to value inventory. An example of the journal entry to write down the inventory to LCM is shown and how this information is reported on the balance sheet.

Solution Preview

Lower-of-Cost-or-Market Rule

The lower-of- cost-or-market rule shows accounting conservatism in action. Although every attempt is made to prepare and present financial data that are free from bias, accountants do use a degree of conservatism. Conservatism means that accountants avoid overstatement of assets and income. Equally, liabilities would tend to be presented at higher amounts in the face of uncertainty. This is not a hardened rule, just a general principle of measurement. There are many accounting practices that are considered examples of accounting conservatism. One example of an accounting practice is the lower-of-cost-or-market method or LCM of costing inventory.

Purchase this Solution

Free BrainMass Quizzes
Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Basics of corporate finance

These questions will test you on your knowledge of finance.