ACC 304 Course Great Wisdom / tutorialrank.com ACC 304 Course Great Wisdom / tutorialrank.com | Page 68

1. A company should abandon the historical cost principle
when the future utility of the inventory item falls below its
original cost.
2. The lower-of-cost-or-market method is used for
inventory despite being less conservative than valuing
inventory at market value.
3. The purpose of the ―floor‖ in lower-of-cost-or-market
considerations is to avoid overstating inventory.
4. Application of the lower-of-cost-or-market rule results
in inconsistency because a company may value inventory at
cost in one year and at market in the next year.

5. GAAP requires reporting inventory at net realizable
value, even if above cost, whenever there is a controlled
market with a quoted price applicable to all quantities.