Lower of cost or market is a conservative approach to valuing and reporting inventory. Normally, ending inventory is stated at historical cost. However, there are times when the

original cost of the ending inventory is greater than the net realizable value, and thus the inventory has lost value. If the inventory has decreased in value below historical cost, then its carrying value is reduced and reported on the balance sheet.

Rembrandt Company accountant is evaluating the ending inventory by the end of the year which is not complete and categorized as work in progress. He has gathered following information related to inventory which will help in valuating the inventory based on Lower of the cost or market value.

Table is in attachment

Requirement

(a) Determine the inventory as of Dec 31, 2014, by the lower of the cost and market value applying this method directly to each items.

(b) Determine the inventory by the lower of the cost and market value applying the total of the inventory?

(c) Relative sales method can also be used to valuate inventory by the end of month. Discuss in which situation this method can be adopted by the companies? You must support your answer with logical answer.