Pharoah Company uses a periodic inventory system and the average cost method. At December 31, 2025, the following information has been compiled for its finished goods inventory: Replacement value Cost Expected selling price Normal profit margin Selling costs $13500 $15000 $15400 15% 5% of expected selling price After applying LCNRV, Pharoah, which uses the cost of goods sold method to record inventory write-downs, will make an entry debiting Cost of Goods Sold for $370. debiting Inventory Loss for $400. O crediting Cost of Goods Sold for $1500. Ocrediting Inventory for $400.

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.