Question

the lower of cot of market basis of accounting for inventories should be applied when the ________ cost of the goods is lower than its cost

Answer 1

The lower of cost or market basis is an accounting method used to value inventory. It compares the cost of goods to the market value, and the lower of the two values is used as the inventory value.

Step-by-step explanation:

In the context of accounting for inventories, the lower of cost or market basis is an accounting method used to value inventory. According to this method, the cost of goods should be compared to the market value of those goods, and the lower of the two values is used as the inventory value.

For example, let's say a company has a product that was originally purchased for $50, but due to a decline in market prices, the market value for that product is now $40. In this case, the lower of cost or market basis would require the company to record the inventory value as $40.

This method is used to ensure that inventory is not overstated on the balance sheet and reflects a more conservative valuation of the goods.