What is LCM?

Lower-of-Cost-or-Market Finished Desks Inventory cost Est. cost to manufacture Commissions and disposal costs Catalog selling price Use of an Allowance Multiple Periods In general, accountants leave the allowance account on the books. They merely adjust the balance at the next year-end to agree with the discrepanoy between cost and the lower-of-cost or-market at that balance sheet date. 830 610 80 Celling-820 (900-80) Not 900 Replacement Cost- 610 Cost-830 Market Not Aceount Floor 640 (8204900 x 20%)) 31,20 LCM 2000 O 1 Descrite and apply the lowenofcost-or-martet nule Lower-of-Cost-or-Market Lower-of-Cost-or-Market Finished Desks Evaluation of Lower-of-Cost-or-Market Rule Ceiling- 1,070 (1,200-130) Inventory cost Est. cost to manufacture Commis sions and disposal costs Catalog selling price $ 960 1,000 130 Some Deficiencies: Expense recorded when loss in utlity occurs. Profit on sale recognized at the pont of sale. 1,200 eInventory valued at cost in one year and at market in the next Cost 1,000 year Net income in year of loss is lower Net income in subsequent period may be higher than normal if expected reductions in sales price do not materialize Cost 960 Market Floor 830 (1,070-11,200 x 20%), LCM uses a normal profit in determining inventory values LCM which is a subjective measure LO 1 Describe and apply the lowenofcost-or-market nde