Under GAAP, which inventory valuation uses the lower of cost or market value?

Under GAAP, which inventory valuation uses the lower of cost or market value?

• A. GAAP Inventory Valuation
• B. FIFO Valuation
• C. LIFO Valuation
• D. Specific Identification

Answer: (A)

Under GAAP, inventory is measured using the lower of cost and market rule, a conservative principle that applies regardless of which cost-flow method you use. Cost is what you paid to acquire the inventory. Market refers to replacement cost, but it’s limited by ceilings and floors: it cannot exceed net realizable value (NRV) and cannot be lower than NRV minus a normal profit. You compare cost to this market value and record the lower amount. This is why the correct choice is GAAP Inventory Valuation—the rule applies to inventory as a whole under GAAP, not to any single cost-flow method. The other options describe ways to assign costs to inventory (like FIFO, LIFO, or Specific Identification) but do not themselves specify the measurement rule of valuing inventory at the lower of cost or market.

Under GAAP, inventory is measured using the lower of cost and market rule, a conservative principle that applies regardless of which cost-flow method you use. Cost is what you paid to acquire the inventory. Market refers to replacement cost, but it’s limited by ceilings and floors: it cannot exceed net realizable value (NRV) and cannot be lower than NRV minus a normal profit. You compare cost to this market value and record the lower amount.

This is why the correct choice is GAAP Inventory Valuation—the rule applies to inventory as a whole under GAAP, not to any single cost-flow method. The other options describe ways to assign costs to inventory (like FIFO, LIFO, or Specific Identification) but do not themselves specify the measurement rule of valuing inventory at the lower of cost or market.