Question

A one-time error in the application of the lower of cost or market/net realizable value (LCM/NRV) rule in the current period distorts financial results for the current accounting period:
a. only.
b. The period before.
c. The period after.
d. All periods after.

Answer 1

Answer:

A one-time error in the application of the lower of cost or market/net realizable value (LCM/NRV) rule in the current period distorts financial results for the current accounting period:

a. only.

Explanation:

The lower of cost or market (LCM/NRV) method states that when valuing a company's inventory use the historical cost or the market value, whichever is lower.  The historical cost refers to the cost at which the inventory was purchased.  The market value is the current price.  The implication is that while the historical cost remains static, the market value shifts over time.

Therefore, if there is a one-time error made in the use of the LCM/NRV rule, it only affects the current period.  The next accounting period will restart the process of comparing the historical costs with the market value, thus obviating the need to repeat the error.