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8 December, 08:19

What is meant by market in the lower-of-cost-or-market rule?

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  1. 8 December, 11:56
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    Stock is valued at lower of : cost or market price [prudence principle]

    Explanation:

    Prudence or Conservatism is an accounting principle : anticipating for all possible losses & expenditures, not anticipating for possible profits & gains. This makes business better prepared to face all contingent expenditures / losses.

    This concept's implication is that : Stock or Inventory is valued at the value whichever is lesser between 'cost of inventory' & sale price. This makes inventory valuation as per the above explained Prudence / Conservatism principle.
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