When you apply the lower- of- cost- or market rule, market values generally refers to. which one
current sales
FIFO
LIFO
current replacement
The Lower-of-Cost or Market rule (LCM) is used report the value of inventory.
For goods that increase in cost with time, inventory is reported using the actual price paid.
It is possible that the market value falls below the actual price paid, so that inventory could be replaced at a lower cost. In this case, the LCM rule requires that the inventory be reported according to the current replacement cost.
See:
http://en.wikipedia.org/wiki/Lower_of_Cost_or_Market
When applying the lower-of-cost-or-market (LCM) rule, market values generally refer to the current replacement cost. The LCM rule is an accounting principle used to determine the appropriate value of inventory on a company's financial statements. It dictates that inventory should be valued at the lower of its historical cost or its current market value.
To apply the LCM rule, the first step is to determine the historical cost of the inventory. This is typically the price at which the inventory was originally acquired or produced.
The next step is to compare the historical cost to the current market value. The market value represents the amount that the inventory could currently be sold for in the marketplace. In the context of LCM, market value refers to the current replacement cost, which is the cost to buy or produce the inventory now.
For example, let's say a company has a particular item in its inventory that was purchased for $10 each. However, due to changes in the market, the current replacement cost for that item is $8 each. In this case, the company would value the inventory at the lower market value of $8, as it is lower than the historical cost of $10.
Overall, when applying the lower-of-cost-or-market rule, market values generally refer to the current replacement cost, which represents the cost to acquire or produce the inventory at the current point in time.