Lower of Cost and Market Method

Lower of Cost and Market Method

A requirement of GAAP in the United States that inventory be recorded at the lower of either the cost to produce it, the cost to repurchase it or the market value of the inventory.

Notes:

The lower of cost and market method has two boundaries on the valuation of inventories. The first is the inventory ceiling, which requires that inventory must be reported no higher than the net realizable value less expenses. The second boundary is the inventory floor, which requires that inventory value be reported at no lower than the net realizable value plus normally attainable profit.

See also: Amortization, Carrying Value, Depreciation, Generally Accepted Accounting Principles - GAAP, Inventory, Inventory Reserve, Net Asset Value - NAV, Net Realizable Value - NRV