Question

Which inventory cost method yields the most realistic amount for inventory, compared to replacement cost, on the balance sheet?

Answer 1

The lower of cost or market (LCM) method yields the most realistic amount for inventory on the balance sheet

Step-by-step explanation:

The inventory cost method that yields the most realistic amount for inventory on the balance sheet, compared to replacement cost, is the lower of cost or market (LCM) method.

The LCM method values inventory at either its historical cost or its market value, whichever is lower. This ensures that inventory is not overstated on the balance sheet.

For example, if the replacement cost of inventory decreases below its historical cost, the LCM method would value the inventory at the lower replacement cost.