LOWER-OF-COST-OR MARKET

Question

Item        QUANTITY ON HAND             UNIT COST                  REPLACEMENT COST(MARKET VALUE

R                             25                            $15                                              $19

S                             60                            $22                                              $20

T                             34                             $30                                              $33

U                             50                             $10                                              $11

V                             13                             $50                                               $55

1) If the lower-of-cost-or market rule (LCM) is used what should it report as the balance of inventory if one market value is computed for all inventories?

2)If lower-of-cost-or market rule (LCM) is used what should be reported as the balance of inventory if a market value is computed for each inventory type?

item:                     INVENTORY BALANCE:

R                             $

S                             $

T                             $

U                             $

V                             $

Answer 1

For part 1, calculate the total cost of all units and the total market value for all units.

 

Total cost = 25*15 + 60*22 + 34* . .etc

Total market = 25*19 + 60*20 + 34* . . .etc.

 

Then you report the lower of the two totals.

 

For individual items, you select the lower value in each case

 

R -- 15

S -- 20

etc. Then you add the five values to report in the balance sheet.