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Why are inventories valued at the lower-of-cost-or-net realizable value (LCNRV)? What are the arguments against the...

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?

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Answer #1

When the market value of assets is lower than its original cost, the lower of cost or market approach will be used because loss need to be reported when loss really occurs

when the market price is lower than the original price, the loss are required to be written down to make statements more accurate and present true and fair view.

The application of LCNRV will results in inconsistency because inventory may be reported at cost in one year and might be reported at market value in next year. This may lead to distortion of data

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