Question

When the conventional retail method includes both net markups and net markdowns in the cost-to-retail ratio, does it approximate a lower-of-cost-or-market valuation?

1) Yes
2) No

Answer 1

No, when the conventional retail method includes both net markups and net markdowns in the cost-to-retail ratio, it does not approximate a lower-of-cost-or-market valuation.

Step-by-step explanation:

When the conventional retail method includes both net markups and net markdowns in the cost-to-retail ratio, it does not approximate a lower-of-cost-or-market valuation. The conventional retail method calculates the cost-to-retail ratio by dividing the total cost of goods available for sale by the total retail value of goods available for sale. This method is used to estimate the ending inventory value. On the other hand, the lower-of-cost-or-market valuation method compares the cost of inventory to its market value and ensures that if the market value is lower, the inventory is written down to the lower market value.