Financial Accounting

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Calculation of Ceiling and Floor of LCM


If the use of replacement value cannot appropriately show the drop in the future value of inventory items, we impose a ceiling value and a floor value when performing lower-of-cost-or-market. The following is a list of possible values regarding the inventory items:

(1): Sale value: \$100,000

(2): Estimated cost of disposal: \$30,000

(3): Normal profit margin: \$10,000