Explanation Lower-of-cost-or-market value: The lower-of-cost-or-market value is a method which requires the reporting of the ending merchandise inventory in the financial statement of a company, at its current market value (net realizable value) or at its historical cost price, whichever is less. Ascertain the cost of ending inventory of Company S under lower-of-or-market method as follows: Item Code Quantity × Cost = Total Cost XKE(Refer table 3) 100 units × $32 = $3,200 XKF (Refer table 2) 300 units × 43 = 12,900 ZNJ (Refer table 3) 400 units × 32 = 12,800 ZNS (Refer table 2) 200 units × 43 = 8,600 $63,600 Table (1) Therefore, the total cost of ending inventory of Company B under LCM method is $63,600 . Note : Take the lowest of cost of inventory or replacement cost to compute ending inventory. Working note: Compute the cost of inventory

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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…

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