MARKET RULE

Lower Of Cost or Market Rule



Lower Of Cost or Market Rule

The lower of cost or market rule is associated with the accounting guideline or constraint known as conservatism. (Conservatism means that if doubt exists between two alternatives, the accountant should choose the alternative that will result in a lesser asset amount and less profit.)

When the lower of cost or market is applied to inventory, the accountant will value the inventory items at the lower of (1) the cost, or (2) the replacement cost within a ceiling and a floor.

The ceiling is the highest amount for the market amount. The ...