Question

Can the lower of cost or net realizable value be applied to individual inventory items, to logical categories of inventory, or to the entire inventory?

1) Only to individual inventory items
2) Only to logical categories of inventory
3) Only to the entire inventory
4) To individual inventory items, logical categories of inventory, or the entire inventory

Answer 1

The lower of cost or net realizable value can be applied to individual inventory items, logical categories of inventory, or the entire inventory.

Step-by-step explanation:

The lower of cost or net realizable value can be applied to individual inventory items, logical categories of inventory, or the entire inventory. This allows businesses to accurately value their inventory based on its market value or the cost to replace it, whichever is lower. Let's look at some examples:

1. Individual inventory items: If a specific inventory item has a net realizable value that is lower than its cost, the business will adjust the value of that item accordingly.
2. Logical categories of inventory: If a category of inventory as a whole has a net realizable value that is lower than its cost, the business will adjust the value of all items within that category.
3. Entire inventory: If the overall net realizable value of the entire inventory is lower than its cost, the business will adjust the value of all inventory items collectively.