AS-2 has advocated to value inventories at the lower of historical cost and net realisable value. It comments: "Inventories are held in the expectation of deriving revenue directly or indirectly from their sale or use. In order to determine the results of a business for a given period, it is necessary to carry forward the cost related to inventories until [...]
The following points highlight the generally accepted methods of inventory pricing, each based on a different Assumption of cost flow. 1. Cost Price Methods: (i) First-In, First-Out (FIFO): The FIFO method follows the principle that materials received first are issued first. After the first lot or batch of materials purchased is exhausted, the next lot is taken up for supply. [...]
In this article we will discuss about Lower of Cost or Market (LCM) Rule:- 1. Subject Matter of Lower of Cost or Market (LCM) Rule 2. Arguments in Support of LCM Rule 3. Criticism. Subject Matter of Lower of Cost or Market (LCM) Rule: The different methods of inventory costing such as FIFO, LIFO determine the value of inventory in [...]