Both GAAP and IFRS require companies to record inventory at the lower of cost or market. However, they define “market” differently. For GAAP, market is usually the replacement cost, but for IFRS, it is the net realizable value.

A. In general, which measure of “market” would you expect to be larger:

replacement cost or realizable value? Explain.

B. Which measurement do you feel gives more relevant information to users? Explain.

C. Which method would normally be easier to verify? Explain.

D. Do you favor the GAAP or the IFRS approach? Why?