Question

If a unit of inventory has declined in value below original cost, and the market value is less than the net realizable value is less a normal profit margin, the amount to be used for purpose of inventory valuation is?

1) Original cost
2) Market value
3) Net realizable value
4) Normal profit margin

Answer 1

The amount to be used for the purpose of inventory valuation in the given scenario is the lower of market value or net realizable value.

Step-by-step explanation:

The amount to be used for the purpose of inventory valuation in the given scenario is the lower of market value or net realizable value.

When a unit of inventory has declined in value below its original cost, it is important to recognize this decline in value on the balance sheet. The lower of market value or net realizable value is used to determine the value at which the inventory should be reported.

The normal profit margin is not relevant to the inventory valuation in this case.

1. Original cost: Not applicable.
2. Market value: Applicable.
3. Net realizable value: Applicable.
4. Normal profit margin: Not applicable.