Concept explainers
Explain the terms cost, and market used in the LCM
Explanation of Solution
Lower-of-cost-or-market: The lower-of-cost-or-market (LCM) is a method which requires the reporting of the ending merchandise inventory in the financial statement of a company, at its current market value or at is historical cost price, whichever is less.
Cost is the money paid to obtain a product or any item. In other words, cost is the purchase price. Such item for which cost is paid to acquire is capitalized and classified as an asset. The cost or purchase price is capitalized because it is categorized as a onetime event.
Market value is referred to as the current replacement cost which means it is necessary for the company to pay an amount for replacing the inventory
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Chapter 8 Solutions
EBK INTERMEDIATE ACCOUNTING: REPORTING
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