What happens if the market price rises

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Point 1: The lower of cost or market (LCM) approach to reporting and valuing inventory, is a departure from the accounting principle of reporting assets at their historical costs. There are those who believe that inventory, as well as other assets, should be valued at market, regardless of whether market is above or below cost.

Point 2: The focus of this case is the justification for the lower of cost or market rule for valuing inventories. Your mission is to defend the lower of cost or market approach against the alternatives of valuing inventory at either historical cost or market value.

Question 1: If they record inventory at market, what happens to the amount over market that was actually paid for the inventory? Explain? Now, what happens if the market price rises after you have written down the inventory?

 

Reference no: EM132484990

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