Lower of Cost or Market

Maximum (Ceiling) - Selling Price (CC) - Net Realizable Value - (NRV)

Market (Replacement Cost) - (RC)

Minimum (Floor) - Selling Price (CC) & (NP) - Net Realizable Value (Profit) - (NRV) (P)

1. Select the value that falls in the middle

2. Compare it to the historical cost and value inventory at the lower amount.

Conclusions:

1. NRV will never be lower than the NRV (P)

2. If RC is lower than NRV and NRV (P) - NRV (P) will be compared to cost = Cost is more than NRV (P), so write down to NRV (P).

3. If RC is greater than NRV (P) and less than NRV - RC will be compared to cost = Cost is more than FMV, so write it down to FMV.

4. If RC is greater than NRV and NRV (P) - NRV will be compared to cost = Cost is more than FMV, so write it down to NRV, no profit.