The correct answer is: B. Cost and Net Realizable Value.
Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and disposal.
Inventory is generally valued at the lower of cost and net realizable value. This means that if the cost of an item of inventory is greater than its net realizable value, the inventory should be recorded at its net realizable value. This is because the net realizable value is the amount that the company expects to realize from the sale of the item, and it is therefore the more conservative value.
There are a number of reasons why the cost of an item of inventory may be greater than its net realizable value. For example, the item may have become obsolete, or the market price for the item may have declined. In these cases, the company would need to write down the value of the inventory to its net realizable value.
A write-down of inventory is a loss that is recorded on the income statement. The loss is calculated as the difference between the cost of the inventory and its net realizable value. The write-down of inventory can have a significant impact on the company’s financial statements. It can reduce the company’s net income, and it can also reduce the company’s working capital.
The write-down of inventory is a common occurrence in the business world. It is important for companies to understand the reasons why inventory may need to be written down, and to be able to calculate the amount of the write-down.