The Lower of Cost and Net Realizable Value Basis of Valuing

question 93

Multiple Choice

The lower of cost and net realizable value basis of valuing inventories ensures that inventories are

• A)valued at their current cost.
• B)valued at their selling price.
• C)not under-valued.
• D)not over-valued.

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Definitions:

Straight-Line Depreciation

A method of allocating the cost of a fixed asset evenly across its useful life, resulting in a consistent depreciation expense each accounting period.

Useful Life

Useful life refers to the estimated timeframe during which an asset is expected to be economically usable by an entity, with reasonable efficiency.

Average Rate of Return

A measure of the profitability of an investment, calculated as the average annual profit returned on an investment, expressed as a percentage of the initial investment cost.

Total Net Income

The total amount of earnings left over for a business after all expenses have been deducted from total revenues.