Which of the following statements is true regarding the lower of cost or net-realizable value (NRV)? I. Firms have the option whether to apply this accounting method. II. Firms can reduce the cost of inventory but not increase it. III. If the NRV is lower, the entry recorded reduces total assets.

Q: 1. When applying lower of cost or market, market value A. is defined as the selling price B.…

A: This Net realizable value(NRV) generally a common method used in valuation of an asset in inventory…

Q: The gross profit method and retail inventory method C Are both estimates of ending inventory and…

A: In company, there is a requirement of valuation of the inventory to find out the cost of the goods…

Q: In a period of falling prices, which inventory method would result in the lowest tax burden? a.…

A: FIFO is first in first out which means inventory bought first is sold first.LIFO is last in first…

Q: Explain the purpose of the inventory turnover ratio? Is it possible for a firm to have a high…

A: In finance we make use of various financial ratios to determine the financial health of a company.…

Q: Which U.S. GAAP principle or rule would apply if the net realizable value of acompany’s inventory is…

A: Net realizable value: Net realizable value is the net amount of receivables which a business expects…

Q: The use of alternative accounting methods:

A: Ratio analysis: Ratio analysis is a tool that establishes a relationship between the different…

Q: Which of the following is true about the quick ratio? a. The quick ratio is calculated by dividing…

A: The ratio analysis helps to analyse the financial statements of the business.

Q: FIFO and weighted average.  But what if a company wants to use LIFO to report its inventory because…

A: Introduction Dollar value of LIFO is an accounting method for valuation of inventory, this method…

Q: When a company determines that the net realizable value of its ending inventory is lower than its…

A: Lower of cost and net realizable value: The lower of cost and net realizable value is a method which…

Q: Which of the following regarding the lower of cost ormarket rule for inventory are true?(i) The…

A: Option c is correct.

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.