Lower of Cost and Net Realizable Value Applies to the Write-Down

question 103

Multiple Choice

Lower of cost and net realizable value applies to the write-down of inventory values when market value exceeds cost.Why does this rule not allow for write-ups in inventory value?

• A) Write-ups in inventory value are more uncertain than write-downs.
• B) The most prudent approach to preparing financial statements involves avoidance of pessimistic projections.
• C) Writing up inventory to market value would be inconsistent with the conservatism principle.
• D) Write-ups in inventory value are inconsistent with the matching principle.

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Definitions:

Net Price

The final price after all discounts, rebates, and incentives have been subtracted from the list price.

Complement Method

A mathematical technique often used in digital computation to simplify subtraction, by working with the complement of numbers.

Trade Discounts

Reductions in price given by sellers to buyers in the commercial transactions, typically based on volume or frequency of orders.

Net Price

The final price after all discounts, rebates, and deductions have been applied, but before taxes and additional fees.