inventories stated lower cost net realizable quizlet

Why are inventories stated at lower of cost and net realizable value quizlet?

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On January 1, 2020, the merchandise inventory of Glaus, Inc. was $1,600,000. During 2020 Glaus purchased $3,200,000 of merchandise and recorded sales of $4,000,000. The gross profit rate on these sales was 25%. What is the merchandise inventory of Glaus at December 31, 2020?

On March 15, a fire destroyed Interlock Company's entire retail inventory. The inventory on hand as of January 1 totaled $6,600,000. From January 1 through the time of the fire, the company made purchases of $2,732,000, incurred freight-in of $312,000, and had sales of $4,840,000. Assuming the rate of gross profit to selling price is 30%, what is the approximate value of the inventory that was destroyed?

Dicer uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $390,000 ($594,000), purchases during the current year at cost (retail) were $2,055,000 ($3,300,000), freight-in on these purchases totaled $129,000, sales during the current year totaled $3,000,000, and net markups (markdowns) were $72,000 ($108,000). What is the ending inventory value at cost?

Boxer Inc. uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $393,500 ($594,000), purchases during the current year at cost (retail) were $3,408,000 ($5,193,600), freight-in on these purchases totaled $159,500, sales during the current year totaled $4,666,000, and net markups were $414,000. What is the ending inventory value at cost?

Barker Pet supply uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $796,800 ($980,700), purchases during the current year at cost (retail) were $3,205,800 ($4,158,300), freight-in on these purchases totaled $191,700, sales during the current year totaled $4,056,000, and net markups (markdowns) were $6,000 ($288,900). What is the ending inventory value at cost?

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Why are inventories measured at lower of cost and net realizable value?

Obsolescence, over supply, defects, major price declines, and similar problems can contribute to uncertainty about the “realization” (conversion to cash) for inventory items. Therefore, accountants evaluate inventory and employ lower of cost or net realizable value considerations.

Why should inventory be valued at lower of cost?

Why Is the Lower of Cost or Market Method Used? The lower of cost or market method lets companies record losses by writing down the value of the affected inventory items.

What rule is followed when inventory is reported at the lower of cost or net realizable value?

In the context of inventory this means that the inventory should be reported at the lower of its cost or its net realizable value (NRV). The rule is associated with the conservatism guideline or principle.

Why inventory is to be valued at cost or market price whichever is lower?

The lower of cost or market rule states that a business must record the cost of inventory at whichever cost is lower – the original cost or its current market price. This situation typically arises when inventory has deteriorated, or has become obsolete, or market prices have declined.

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