Current Generally Accepted Accounting Principles State That a Departure from the Cost

question 118

Essay

Current generally accepted accounting principles state that a departure from the cost basis of pricing inventory is required when the utility of the goods is no longer as great as its cost.Accordingly,the lower-of-cost-or-market rule is applied to inventories such that,if market is less than cost,an adjustment is made to record the loss and to restate ending inventory at the lower value.
What effect would the failure to apply the lower-of-cost-or-market method have on the income statement in current and future periods?

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Definitions:

Cane Juice

The liquid extracted from sugarcane in the production of sugar.

Cane Fiber

A natural fiber derived from the sugarcane plant, often used in the production of eco-friendly materials and paper products.

Constrained Resource

An essential element of production that is available in limited quantities, thereby limiting throughput.

Bottleneck

A point of congestion in a production system where the limited capacity of a process causes delays or lower output in the subsequent processes.