When applying the lower cost or market rule to the valuation of inventory, the allowance method is considered preferable to the direct method because
A. the allowance method reports a higher inventory net valuation for balance sheet purposes than the direct method
B. the allowance method reports the inventory loss or loss recover in a separate income statement account
C. the allowance method, unlike the direct method, reduces the value of inventory reported on the balance sheet
D. the allowance method reports smaller losses than the direct method

Question

Redmondwllc2235 Redmondwllc2235

26-11-2021
Business

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When applying the lower cost or market rule to the valuation of inventory, the allowance method is considered preferable to the direct method because
A. the allowance method reports a higher inventory net valuation for balance sheet purposes than the direct method
B. the allowance method reports the inventory loss or loss recover in a separate income statement account
C. the allowance method, unlike the direct method, reduces the value of inventory reported on the balance sheet
D. the allowance method reports smaller losses than the direct method

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topeadeniran2 topeadeniran2 · Answer 1 · 2021-12-08T11:49:58+01:00

It should be noted that the allowances method is considered preferable because B. the allowance method reports the inventory loss or loss recover in a separate income statement account.

It should be noted that the most common approach when implementing the lower cost is to apply it to each individual item of inventory separately.

When applying the lower cost or market rule, the market value should not exceed the net realizable value. Also, the allowance method is more preferable than the direct method because it reports the inventory loss or loss recover in a separate income statement account.

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