Accounting for IGCSE & O level - Final Statements (Section 6 - No. 43)
Why is it important to value inventory at the lower of cost or net realisable value?
To always maximise profit.
To ensure assets are never undervalued.
To ensure assets are never overvalued.
To accurately report sales revenue.
Forklaring
Valuing inventory at the lower of cost or net realisable value ensures that the inventory is not overvalued in the financial statements. This is an application of the prudence concept.