Question

The lower of cost and market value (net realizable value) rule causes losses in the value of inventory to be recognized in the period when:_______.
a. The value of inventory declines below cost.
b. The inventory is sold.
c. The inventory is purchased.
d. Cash collection from the customer fails to occur.

Answer 1

Answer:

a. The value of inventory declines below cost.

Explanation:

• The inventory values are the total cost of the value calculated at the ends of the inventory accounting period and the market value is compared by the lowering of the inventory costs.  

• For each type of the item the net realized values cause a loss in the values of the inventory which needs to be recognized.