Lesson: Lower of Cost or Market Rule

In this lesson, Nick Palazzolo, CPA, dives into the lower of cost or market rule, an essential valuation method for inventory reporting. He untangles the complexities of determining whether to report inventory at historical cost or adjust it to market value—falling between a defined ceiling and floor price. Nick clarifies the conditions where inventory should be adjusted due to a decrease in value, emphasizing the conservative nature of this approach. With helpful insights, he moves towards an illustrative example that makes the concept crystal clear, connecting it to the historical cost principle and its role within GAAP and FASB standards. This detailed exploration provides a practical understanding of how to apply this exception to the historical cost principle when inventory loses value.