Question

Why are inventories stated at lower-of-cost-or-market?a. To report a loss when there is a decrease in the future utility.b. To keep track of the market value of the inventory.c. To report a loss when there is a decrease in the future utility below the original cost.d. To permit future profits to be recognized.

Answer 1

Answer: The correct answer is "c. To report a loss when there is a decrease in the future utility below the original cost."

Explanation: When talking about current assets, or more precisely, Merchandise inventory, it is common that sometimes the sale value is less than the original cost of the assets, therefore a negative holding result is produced, that is, a loss.