Under US GAAP, which inventory method requires the use of 'Lower of Cost or Market' (where Market has a ceiling and floor), rather than 'Lower of Cost or Net Realizable Value'?

Answer options:

LIFO or Retail Inventory Method

FIFO or Weighted Average

All inventory methods

Only the Retail Inventory Method

How to approach this question

Memorize the exception: FIFO/Average = LCNRV. LIFO/Retail = LCM.

Full Answer

A.LIFO or Retail Inventory Method✓ Correct

The simplification to 'Lower of Cost or NRV' applies to all inventory methods EXCEPT LIFO and the Retail Inventory Method. These exceptions continue to use 'Lower of Cost or Market' (where Market is replacement cost bounded by NRV and NRV-Profit).

Common mistakes

Assuming the new LCNRV rule applies to everyone.

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