Apply the lower of cost and net realizable value rule to the valuation of inventory.

- If the market value of inventory has dropped below its original cost, IFRS and ASPE require a departure from the cost principle.

- A company reduces the amount recorded for inventory to its net realizable value, where net realizable value is defined as expected selling price less estimated selling costs.

- This lower of cost and net realizable value rule is an application of the prudence principle.