Question

The original cost of an inventory item is below both replacement cost and net realizable value. The net realizable value less normal profit margin is below the original cost.Under the lower of cost or market method, the inventory item should be valued atA. Replacement cost.B. Net realizable value.C. Net realizable value less normal profit margin.D. Original cost.

Answer 1

Answer:

B. Net realizable value.

Explanation:

Given that the net realizable value less normal profit margin is below the original cost.

Inventory is initially recognized at the cost however subsequent measurement requires that it be valued at the lower of cost or the net realizable value (NRV).

In other words Inventory will cannot be carried at a value higher than the NRV.

The right answer is B. Net realizable value.