Lcm Case Study

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1. What is the LCM Rule for Inventory? Explain with suitable examples. LCM Rule i.e Lower of cost or market value is a rule which is applied and followed by the firm’s accountant while recording value of inventory in the financial statements. Basically firm records all of its assets in the financial statements at their original cost (cost which is initially incurred to acquire these assets), but this is not an established rule for recording inventory, and hence at the time of recognizing and valuing inventory in the financial statements, cost principle , which businesses follow for entirely all of their asset is not recognized for inventory. Lower of Cost or Market value states that inventory must always be valued/ recorded at lower of cost…show more content…
Net Realizable Value (NRV) or ceiling placed at the market value of inventory is generally recognized as upper limit placed on market value. Net realizable value means / rule as a difference between the expected selling price of inventory and the addition of expected completion cost and expected future expenses which a company must pay to make that sale…show more content…
the completion of the physical structure of the qualifying asset, although some administrative or decorative work may still continue. If a qualifying asset contains different component parts such as (Industrial plant which has several processes) and the entity will complete the construction of such qualifying asset by constructing each part or component on individual basis in a sequence, where each part or component can be used individually while the construction work is in progress on other parts or components, the capitalization of the borrowing cost will cease when activities necessary to complete that part for its intended use or sale has been finished. 3. What are Qualifying Assets? Explain with examples. Qualifying Assets: In accounting qualifying asset is the term which is used for an asset which takes significant amount of time to get ready whether it’s for future production of company’s products or for selling it to the prospective customers of a company. International Accounting Standard 23 (IAS 23) defines qualifying asset as “an asset that necessarily takes a substantial period of time to get ready for its intended use or sale”. Examples • A power plant will take an extra time period to get ready for the generation of electricity. • Another example is a hydroelectric dam which will take many years to build to serve the

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