Accountants generally follow the lower of cost or market (LCM) basis of inventory valuations.

Required:

1. Define cost as applied to the valuation of inventories.
2. Define market as applied to the valuation of inventories
3. Why are inventories valued at the lower of cost or market? Discuss.
4. List the arguments against the use of the LCM method of valuing inventories.

Adopted from: FINANCIAL ACCOUNTING THEORY AND ANALYSIS: TEXT AND CASES by Schroeder, Clark and Cathey. Page 279, Case 8-5