Question

Which statement concerning lower-of-cost-or-net-realizable-value (LCNRV) is incorrect? LCNRV is an example of a company choosing the accounting method that will be least likely to overstate assets and income. The LCNRV basis is justified because of a decline in the selling price of the inventory item. LCNRV is applied after one of the cost flow assumptions has been applied. Under the LCNRV basis, market does not apply because assets are always recorded and maintained at cost.

Answer 1

Answer:

The LCNRV basis is justified because of a decline in the selling price of the inventory item

Explanation:

The accounting standard for Inventory under IFRS IAS 2 requires that inventory be recognized at cost which includes all the cost incurred to bring the item of inventory to a state or place where the item of inventory becomes available for sale.

These costs includes cost of purchase, freight, Insurance cost during transit etc.  

Subsequently, inventory is to be carried at the lower of cost or net realizable value.

This is justified where there is a decline in the selling price of inventory as it ensures that the amount stated in the books is fairly representative of the amount that may be realized from the sale of the inventory items.