Under GAAP, inventory is valued using which method?

Under GAAP, inventory is valued using which method?

• A. Lower of Cost or Market
• B. FIFO
• C. LIFO
• D. Weighted Average Cost

Answer: (A)

Under GAAP, inventory is reported at the lower of cost or market. This means you compare the cost of the inventory (as determined by a cost-flow method like FIFO, LIFO, or weighted average) to its market value, and you record a write-down if market is lower. Market is generally the replacement cost, but it is constrained by a ceiling and floor (not higher than net realizable value and not lower than NRV minus a normal profit). If the market value later increases, GAAP typically does not allow reversing a prior write-down. The other options describe methods to assign cost to inventory, but the measurement basis required by GAAP is the lower of cost and market.

Under GAAP, inventory is reported at the lower of cost or market. This means you compare the cost of the inventory (as determined by a cost-flow method like FIFO, LIFO, or weighted average) to its market value, and you record a write-down if market is lower. Market is generally the replacement cost, but it is constrained by a ceiling and floor (not higher than net realizable value and not lower than NRV minus a normal profit). If the market value later increases, GAAP typically does not allow reversing a prior write-down. The other options describe methods to assign cost to inventory, but the measurement basis required by GAAP is the lower of cost and market.