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Sandhill Inc. has the following information related to an item in its ending inventory. Packit (Product # 874) has a cost of $91, a replacement cost of $71, a net realizable value of $81, and a normal profit margin of $2. What is the final lower-of-cost-or-market inventory value for Packit?

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Answer:

The lower of cost to market value = $71

Explanation:

According to International Accounting Standards (IAS 2) , Inventory should be measured at the lower of cost and net realizable value .

But the US GAAP differs on the measurement criteria, The US GAAP states that inventory should be measured at the lower of cost and the market( replacement cost)

So using the USA GAAP,

Market-Replacement cost- $71

Net realizable value = $81

Lower of the two is the Net realizable value- $71

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