Which of the following is a deficiency of using the lower of cost or market rule

Question

Which of the following is a deficiency of using the lower of cost or market rule? Inventory valued at cost in one Year and at market in the next year. LCM uses a normal profit" in determining inventory values, which is a subjective measure. Net income in year of loss is lower. Net income in subsequent period may be higher than normal if expected reductions in sales price do not materialize. All of the above are deficiencies of using the lower of cost or market rule. Which of the following is not true with respect to the gross profit method of valuing inventories? A blanket gross profit rate may not be representative. Normally acceptable for financial reporting purposes. GAAP requires a physical inventory as additional verification. Provides an estimate of ending inventory. Uses past percentages in calculation.

Explanation / Answer

3)

D all of the above

4)

D uses past percentage in calculation

No past trend is seen in gross profit method

A summary of steps in the gross profit method is given below:

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