Lower of Cost or Market The following information for Tuell Company is available
ID: 2517531 • Letter: L
Question
Lower of Cost or Market The following information for Tuell Company is available: Case 3 $5.00 $5.00 $5.00 $5.00 $5.00 5.10 5.50 4.80 4.20 4.70 4.80 5.30 4.70 4.00 4.60 5.30 5.20 4.60 4.15 4.80 2 Cost Net realizable value Net realizable value less normal profit Replacement cost Required: K)1. Assume Tuell uses the LIFO inventory method. What is the correct inventory value in each of the preceding situations under U.S. GAAP? If required, round your answers to the nearest cent. Inventory Case value 2 2. Assume Tuell uses the average cost inventory method. What is the correct inventory value in each of the preceding situations under U.S. GAAP? If required, round your answers to the nearest cent. Inventory Case value Previous NextExplanation / Answer
Answer to 1
Case
1
2
3
4
5
Cost
$5.00
$5.00
$5.00
$5.00
$5.00
NRV
5.10
5.50
4.80
4.20
4.70
NRV less Normal profit
4.80
5.30
4.70
4.00
4.60
Replacement cost
5.30
5.20
4.60
4.15
4.80
If Tuell uses LIFO inventory method, the inventory values as per U.S. GAAP are as follows:-
As per U.S. GAAP inventories are valued at cost or market, whichever is lower (LCM).
Here, market value = Current replacement cost that is subject to :-
Upper limit (Ceiling) = Net Realizable Value (NRV)
Lower limit= Net Realizable Value (NRV) - Normal Profit Margin
Case
Cost
Market value
Inventory Value (Lower of Cost or market)
1
$ 5
$ 5.10
$ 5
2
$ 5
$ 5.30
$ 5
3
$ 5
$ 4.70
$ 4.70
4
$ 5
$ 4.15
$ 4.15
5
$ 5
$ 4.70
$ 4.70
Case
1
2
3
4
5
Cost
$5.00
$5.00
$5.00
$5.00
$5.00
NRV
5.10
5.50
4.80
4.20
4.70
NRV less Normal profit
4.80
5.30
4.70
4.00
4.60
Replacement cost
5.30
5.20
4.60
4.15
4.80
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