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The lower-of-cost-or-market (LCM) approach was developed to avoid reporting inventory at an amount greater than the benefits it can provide. The LCM approach records losses in the period the value of the inventory drops below its cost instead of later in the period that the goods are ultimately sold.
1) Is this a conservative or an aggressive approach?
2)What does GAAP say about LCM?
Lower cost or market is how we insure that our inventory is presented on the books or general ledger at its true fair market value unless the inventory was purchased at a bargain price that was below fair market value(FMV.)
3) Consider how inventory would be presented IF there was not an LCM adjustment.
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