ExpertHard1 markMultiple Choice
CPA · Question 18 · Area 2: Select Accounts
Under US GAAP, which inventory method requires the use of 'Lower of Cost or Market' (where Market has a ceiling and floor), rather than 'Lower of Cost or Net Realizable Value'?
Under US GAAP, which inventory method requires the use of 'Lower of Cost or Market' (where Market has a ceiling and floor), rather than 'Lower of Cost or Net Realizable Value'?
Answer options:
A.
LIFO or Retail Inventory Method
B.
FIFO or Weighted Average
C.
All inventory methods
D.
Only the Retail Inventory Method
How to approach this question
Memorize the exception: FIFO/Average = LCNRV. LIFO/Retail = LCM.
Full Answer
A.LIFO or Retail Inventory Method✓ Correct
The simplification to 'Lower of Cost or NRV' applies to all inventory methods EXCEPT LIFO and the Retail Inventory Method. These exceptions continue to use 'Lower of Cost or Market' (where Market is replacement cost bounded by NRV and NRV-Profit).
Common mistakes
Assuming the new LCNRV rule applies to everyone.
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