Accounting for IGCSE & O level - Final Statements (Section 8 - No. 46)
What is the effect on the financial statements when using the lower of cost or net realisable value (NRV) rule for inventory valuation?
It can lead to a higher profit in the period.
It can lead to a lower profit in the period.
It does not affect profit.
It ensures that the original cost is always used.
Explication
Using the lower of cost or NRV can result in a lower profit because the inventory is valued lower than its original cost, which reduces the gross profit.