Question

Masterlink Co., in applying the lower of cost or market method, reports its inventory at net realizable value. Which of the following statements is correct? Question 3 options: A) Cost is greater than net realizable value. B) NRV is greater than replacement cost. C) Cost is less than NRV minus a normal profit margin. D) Cost is less than net realizable value.

Answer 1

Answer:A. Cost is greater than net realisable value(NRV)

Explanation:

An inventory should not be higher than the price its sale or use and this requires the comparison of inventory cost to it's ( NRV) and whichever is lower will be used as cost of inventory

NRV= Sales price less cost to completion and less estimated cost necessary to make the sales.