Why are inventories valued at the lower-of-cost-or-net realizable value (LCNRV)? What are the arguments against...
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Why are inventories valued at the lower-of-cost-or-net realizable value (LCNRV)? What are the arguments against the use of the LCNRV method of valuing inventories?
Because the price is not fix through the entire time pass, when the market price is lower than the original price, the loss are required to be written down to make statement more accurately. The method is consistent in application in a given year because it recognizes the property of implied price reduction but gives no recognition in the accounts or financial statements.
The argument against the use of the LCNRV method of valuing inventories is that the result derived may be inconsistent due to the application of LCNRV as inventory may be reported at cost in one year and may be at market value in next year. This may lead to distortion of some data. The method is also inconsistent in application in one year and at net realizable value in the next year.
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