Question

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

Answer 1

Answer:

D. Replacement cost.

Explanation:

As we know that the inventory should be recorded at the cost or market value whichever is lower

Given that

Original cost is less than the net realizable value subtract the profit margin

So we assume the following figures

Original cost $10

Net realizable value 9

Replacement cost 8

NRV less normal profit margin 7

As if we compare the original cost and replacement cost so the lower value is of replacement cost

hence, the same is to be considered

Therefore the correct option is D.