Answer to Question #243255 in Management for Saamith

Question

3. Identify the reasons for lower net realizable value and explain why inventory should be measured 

at the lower of cost and net realizable value.

Answer 1

When goods produced by a firm becomes obsolete leading to from unable to make profit or sales.

When goods get damaged the price that it would cost to repair them may make the realisable lower than the cost itself.

When the cost of producing the goods has increased it may lead to lower realizable value.

Inventory should be measured at the lower realizable value because when a business makes a lose it should be recorded or reported at the time when it occurs.