Illustrate lcm method, Accounting Basics

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Q. Illustrate lower-of-cost-or-market method?

Procter & Gamble markets a broad range of paper, cleaning, beauty care, health care, food, laundry and beverage products around the world. Procter & Gamble's annotation in its Notes to Consolidated Financial Statements in its annual report illustrates that companies often disclose LCM in their notes to financial statements.

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Inventories are valued at cost, which isn't in excess of current market price. Cost is primarily determined by also the average cost or the first-in first-out method. The replacement cost of last-in first-out inventories exceeds carrying value by approximately USD 169.

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A company using periodic inventory procedure may perhaps estimate its inventory for any of the following reasons

- To acquire an inventory cost for use in monthly or quarterly financial statements without taking a physical inventory. The effort of taking a physical inventory is able to be very expensive and disrupts normal business operations; once a year is often enough.

- To evaluate with physical inventories to determine whether shortages exist.

- To verify the amount recoverable from an insurance company when fire has destroyed inventory or the inventory has been stolen.


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