Lower of cost or market

Lower of cost or market is the retained US-GAAP path for inventory measured using LIFO or the retail inventory method. “Market” is a constrained amount, not an unrestricted market price and not always replacement cost. Route the population before computing it.

ASC 330-10-35-1A separates this population from the direct NRV path. Paragraphs 35-1C through 35-7 retain lower-of-cost-or-market measurement for LIFO and retail-method inventory.

Compute supported NRV as the ceiling. Subtract an approximately normal profit margin from NRV to obtain the floor. Constrain current replacement cost between that ceiling and floor; the result is designated market. Compare cost with designated market. If replacement cost is above the ceiling, use the ceiling. If it is below the floor, use the floor. Otherwise use replacement cost.

For cost of $950, NRV of $900, normal profit of $120, and replacement cost of $820, the floor is $780. Replacement cost falls inside the range, so designated market is $820 and the write-down is $130. Each input still needs the same date, item or category, unit, method, and source scope.

Do not apply the floor to non-LIFO, non-retail inventory. Do not call designated market fair value. The Cedar example shows the route, and Northstar practice tests a replacement cost below the floor.