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.
Giải thích
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.