Which of the Following Statements Relating to the Lower of Cost

question 5

Multiple Choice

Which of the following statements relating to the lower of cost and net realisable is incorrect?

• A) It results in probable losses being recorded in the period when they are first noticed rather than when the sale occurs.
• B) The rule is based on the accounting principle of conservatism (prudence).
• C) The rule is applied separately to each item of inventory or to groups of inventory items.
• D) The gross profit reported in the period when the rule is applied is higher than it otherwise would be.

---

Definitions:

Benefit Corporation

A type of for-profit corporation, available by statute in a number of states, that seeks to have a material positive impact on society and the environment.

Decision-making Process

The series of steps or actions taken to make choices or judgments among alternative courses of action.

Society

A community of people living together in a more or less ordered community, or the aggregate of people living together in a more or less ordered community.

Unlimited Liability

A business obligation where owners are personally responsible for all of a company's debts.