Identify the Statement Relating to the Lower of Cost and Net

question 57

Multiple Choice

Identify the statement relating to the lower of cost and net realisable value rule that is untrue.

• 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 prudence (conservatism).
• C) The gross profit reported in the period when the rule is applied is higher than it otherwise would be.
• D) The rule is applied separately to each item of inventory or to groups of inventory.

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Definitions:

Dividend Yield Ratio

An economic ratio that illustrates the yearly dividend disbursement of a company as a percentage of its stock value.

Net Profit Margin

A financial ratio that shows the percentage of profit a company makes for each dollar of sales, after all expenses are deducted.

Return on Equity

A measure of a corporation's profitability that calculates how much profit a company generates with the money shareholders have invested.

Price/Earnings Ratio

A valuation ratio of a company's current share price compared to its per-share earnings, used to evaluate if a stock is over or undervalued.