Lower of cost and net realizable value
Response to the following problem:
The lower of cost and net realizable value approach to valuing inventory is a departure from the accounting principle of reporting assets at their historical costs. There are those who believe that inventory, as well as other assets, should be valued at market, regardless of whether market is above or below cost.
The focus of this case is the justification for the lower of cost and net realizable value rule for valuing inventories. Your instructor will divide the class into two to six groups depending on the size of the class. The mission of your group is to defend the lower of cost and net realizable value approach against the alternatives of valuing inventory at either historical cost or market value.
Required:
1. Each group member should consider the situation independently and draft a tentative argument prior to the class session for which the case is assigned.
2. In class, each group will meet for 10 to 15 minutes in different areas of the classroom. During that meeting, group members will take turns sharing their suggestions for the purpose of arriving at a single group argument.
3. After the allotted time, a spokesperson for each group (selected during the group meetings) will share the group's solution with the class. The goal of the class is to incorporate the views of each group into a consensus approach to the situation.