Using the FIFO method, the cost of inventory at the end is $15,500, and the market price is $14,500. Using the lower-of-cost-or-market rule, the inventory cost in the financial statement will be:
Using the lower of cost or market method implies firstly valuing the inventory at the purchased cost (historical cost). But as the value of a good can change and if the price at which the inventory can be sold falls below its net realizable value the loss (and new value) must be recorded. It is a method for adjusting asset values in subsequent reporting periods.
