The Lower of Cost and Net Realizable Value Basis of Valuing

question 114

Multiple Choice

The lower of cost and net realizable value basis of valuing inventories is a departure from the

• A) matching principle.
• B) valuation principle.
• C) historical cost principle.
• D) prudence principle.

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Definitions:

Tax Depreciation

The depreciation expense allowed by tax authorities for tax calculation purposes, reflecting the reduction in value of assets over time.

Book Depreciation

The amount of depreciation expense that has been allocated for a fixed asset in a company's financial records.

Tax Rate

The percentage at which an individual or corporation is taxed by the government.

Income Tax Expense

The total amount of income tax a company is required to pay to tax authorities, as calculated based on taxable income.