Departures from cost basis of inventory measurement, Accounting Basics

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Q. Departures from cost basis of inventory measurement?

In general companies must use historical cost to value inventories and cost of goods sold. But some circumstances justify departures from historical cost. One of these circumstances is when the value or utility of inventory items is less than their cost. A decrease in the selling price of the goods or their replacement cost may indicate such a loss of utility. This section explains how accountants handle a few of these departures from the cost basis of inventory measurement.


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