Which of the Following Is a Correct Statement About the Lower-Of-Cost-Or

question 52

Multiple Choice

Which of the following is a correct statement about the lower-of-cost-or market rule?

• A) Under GAAP, once inventory has been written down to market value, the write-downs can be reversed in future periods.
• B) Under GAAP, the lower-of-cost-or-market rule is optional.
• C) Under IFRS, inventory can exceed its original cost.
• D) Under IFRS, "market" is defined as "net realizable value."

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Definitions:

High-low Method

The high-low method is a straightforward way to estimate the variable and fixed components of a cost by using the highest and lowest activity levels and the corresponding total costs.

Machine Hour

A unit of measurement that represents an hour of operation of a machine or equipment.

Fixed Costs

Expenses that do not change in proportion to the level of production or sales, such as rent and salaries.

High-low Method

A technique used in accounting and finance to estimate fixed and variable costs based on the highest and lowest levels of activity.