As of December 31. Ayanda did not include merchandise in its physical count of ending inventory. The effect of this on its financial statements for December 31 would be net income was understated and current liabilities were overstated. net income, current assets, and retained earnings were understated. net income was correct and current assets were understated. net income was overstated and current assets were understated. What is the rationale behind the ceiling when applying the lower-of-cost-or-market method to inventory? C Prevents understatement of the inventory value. Allows for a normal profit to be earned Allows for items to be valued at replacement cost. Prevents overstatement of the value of obsolete or damaged inventories