Question

Under the lower-of-cost-or-market method, the replacement cost of an inventory item would be used as the designated market value:a. when it is below the net realizable value less the normal profit margin.b. when it is below the net realizable value and above the net realizable value less the normal profit margin.c. when it is above the net realizable value.d. regardless of net realizable value.

Answer 1

b. when it is below the net realizable value and above the net realizable value less the normal profit margin.

Step-by-step explanation:

As we know that inventory will be recorded at cost or market value whichever is lower. But in the given case, the replacement cost would be recorded at higher values and lesser values. Higher values represent the Net realizable value whereas the lesser values represent the net realizable value less than the normal profit margin.

And if the replacement cost lies in this range than it represents the market value.

Hence, option b is correct.