Explanation Lower-of-cost-or-market method: Under conservative approach of valuation, firms use to value the inventory at cost or market price whichever is less; it is termed as lower-of-cost-or-market method. It is done to record the loss due to decrease in the value of inventory beyond its cost. Calculation of value of inventory under lower-of-cost-or-market method is based on ceiling limit and floor limit. Rain: Net realizable value is $71, and cost value is $60 as cost value is low therefore $60 will be the value of inventory and there will be no written-down amount. Snow: Net realizable value is $86 and cost value is $93 as net realizable value is low therefore $86 will be the value of inventory. Written-down amount per unit will be $7 ( $ 93 − $ 86 ) . Working Note: Rain: Given, Selling price is $95. Coat of completion and disposal is $24. Normal profit margin is $12. FIFO cost value of inventory is $60. Replacement cost or market value is $70

Intermediate Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText -- Access Card Package (2nd Edition)

2nd Edition

ISBN: 9780134833118

Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

Publisher: PEARSON

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Inventory Accounting

Inventory accounting is that branch of accounting that helps in determining the specific value of assets at different stages of production and development.

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Chapter 10, Problem 10.20BE

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The per unit value of ending inventory using lower-of-cost-or-market method.

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Chapter 10, Problem 10.19BE

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Intermediate Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText -- Access Card Package (2nd Edition)

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The per unit value of ending inventory using lower-of-cost-or-market method.

Solution Summary: The author explains the lower-of-cost-or-market method, which is done to record the loss due to decrease in the value of inventory beyond its cost.

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The per unit value of ending inventory using lower-of-cost-or-market method.

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