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FASB ACcounting Standards Codification: 1. Measurement of ending inventory using the lower of cost or net...

FASB ACcounting Standards Codification: 1. Measurement of ending inventory using the lower of cost or net realizable value (LCNRV) rule 2. The level of aggregation that should be used in applying the LCNRV or LCM rule

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Answer #1

The FASB Accounting Standards Codification is the set of accounting principles and guidelines set by GAAP.

1.It is stated in Topic 330, that to ease the valuation of inventory the inventory should be measured at" the lower of cost and net realisable value (LCNRV)". In other words LCNRV measures the decline in the value of a companys inventory.

2. There are several other factors used in applying LCNRV , such as

A. The guidance in Topic 330 is overlooked when the Cost of an inventory exceeds Net realizarea value(NRV) i.e. if cost of ana inventory is greater than NRV then cost valuation of inventory is done. If interim period Accounting the NRV is uncertain the decline in NRV of the inventory below cost shall be taken in conistence with the according period other than current.

B . If the inventory is an hedged item in a fair value hedge , the inventory cost used to calculate LCNRV should show the adjustments made to arrive at the carrying amount.

C. Depending upon the nature and type of inventory the rule of LCNRV should be applied, either to each item or to the total of inventory.

LCNRV is mandatef for items like harvested crops, Animals held for sale etc.

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