The LCM rule may be applied to individual inventory items

The LCM rule may be applied to individual inventory items -...

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The LCM rule may be applied to individual inventory items, to groups of similar items, or if the  inventory consists of related items, to the entire inventory. As the chart below indicates, applying the  LCM rule to individual items produces the most conservative valuation of inventory. As the number of  items grouped together increases, the reported value of inventory tends to increase because  increases in the market value of some items may partially offset decreases in the market value of  other items in the same group. LCM Rule applied to Cost Market Items Groups Entire Inventory Computers Model EX7 $150,000 $125,000 $125,000 Model NX8 30,000 32,000 30,000 Model VX9 50,000 55,000 50,000 Total 230,000 212,000 $212,000 Printers Model PL30
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Unformatted text preview: 30,000 34,000 30,000 Model PL60 15,000 18,000 15,000 Model PL90 25,000 24,000 24,000 Total 70,000 76,000 70,000 Total inventory $300,000 $288,000 $274,000 $282,000 $288,000 LCM Rule applied to Cost Market Items Groups Entire Inventory After the value of inventory has been written down, an increase in net realizable value or market value is not recorded. Instead, such increases are recognized as revenue when sales actually occur. Because companies must estimate net realizable value and because applying the LCM rule to individual items or groups of items yields different inventory values, financial statements should disclose the company's basis for determining the value of inventory....
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This note was uploaded on 11/14/2011 for the course ACCT 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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The LCM rule may be applied to individual inventory items -...

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