Lower of Cost or Market (LCM) Rule Adjustment for Bonsai Boards Inventory

What adjustment, if any, is needed for Bonsai Boards inventory on December 31, 2018?

An adjustment of $1,500 is required for the inventory based on the LCM rule.

Explanation:

The situation on December 31, 2018, reveals that Bonsai Boards had 15 maple sleds in inventory. Each of these maple sleds had an initial cost of $1,200 per unit, which summed up to a total inventory value of $18,000. However, according to the Lower of Cost or Market (LCM) rule, an adjustment is necessary when the replacement cost of inventory falls below its original cost. In this specific case, the replacement cost of the maple sleds was $1,100 per unit, which is lower than the original cost of $1,200 per unit. Therefore, an adjustment is indeed required. To determine the adjustment amount, the replacement cost is subtracted from the original cost. This results in an adjustment per unit of $1,200 - $1,100 = $100. Since there are 15 units of maple sleds in inventory, the total adjustment would be $100 x 15 = $1,500. Consequently, Bonsai Boards must make an adjustment of $1,500 based on the LCM rule to align the inventory value with the current market conditions. For additional information on the LCM rule, please visit:
← Austrian winemaking focus and use of oak How to report gain on the sale of property using the installment method →

More Posts: