Why companies are required to use the rule of lower of cost or market

| March 31, 2017

Question
Why companies are required to use the rule of lower of cost or market? What is “market” and how is it determined? Why are ceiling and floor limitations on replacement cost considered necessary? Are adjustments required if market increases? Decreases? Which accounts are used to record inventory value adjustments? What is an Allowance for Decline in Value of Inventory? Why would a company choose to use the Allowance account instead of crediting Inventory account directly? Can you think of any company that may show losses from decline in value of inventory? If you find any company that has such losses on financial statements, please post the link here so we can take a look.

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