1. Which of the following valuation bases is used to value Ending Inventory on t

Question

1. Which of the following valuation bases is used to value Ending Inventory on the Balance Sheet? a. Net realizable value. b. Historical Cost. c. Market value. d. Lower-of-cost-or-market. e. Replacement cost.

In determining the market value of ending inventory, which of the following is NOT considered as a possible market value?

Replacement cost of the inventory.

Ceiling price, calculated as the Selling price less costs to complete or selling costs.

Net realizable value

Floor price, calculated as the Ceiling price less the profit margin.

Selling price without any adjustments.

Explanation / Answer

1.d. Lower-of-cost-or-market.

2.Selling price without any adjustments.

In the term lower of cost or market the word "market" refers to an item's current replacement cost (whether through purchase or production). The market amount is constrained or limited by two amounts: (1) an upper limit, or "ceiling," and (2) a lower limit, or "floor." An item's market amount (or replacement cost) cannot be higher than the ceiling nor lower than the floor.

Both the upper limit (the ceiling) and the lower limit (the floor) are related to the net realizable value (defined above) in the following ways:

Here's a recap on how to determine the market amount used in the lower of cost or market rule:

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.