replacement cost and net realizable value

[saminathan]

This question is so confusing to me - Schweset Vol-2 Practice exam -2 AM
In accordance with GAAP, ABC corp reports its inventory at replacement ocst under the lower-of-cost-or-market method. Which of the following statements must be correct? The original cost is:
A) greater than replacement cost, and the net realizable value is less than replacement cost
B) greater than replacement cost, and the net realizable value is greater than replacement cost
A) less than replacement cost, and the net realizable value is greater than replacement cost

 

[spirit]

B?

 

[jblamb]

I’m thinking A.
the replacement cost would be the market value of the asset today.
NRV includes costs associated with the sale of the asset as well.
So.
Orig cost > Replacement > NRV….. right?

 

[saminathan]

spirit Wrote:
——————————————————-
> B?
Yes, you are right. Can you please explain?

 

[daddybackstab]

I went with B
You record at lower of original cost or market(which means replacement)
since its reported at market(replacement cost) you know the original cost must be greater then replacement cost
then you look at NRV, if replacement cost is greater than NRV you record at NRV, if its not you record at replacement cost. Since this was recorded at replacement cost, we know NRV is greater then replacement cost

 

[spirit]

daddybackstab Wrote:
——————————————————-
> I went with B
>
> You record at lower of original cost or
> market(which means replacement)
> since its reported at market(replacement cost) you
> know the original cost must be greater then
> replacement cost
>
> then you look at NRV, if replacement cost is
> greater than NRV you record at NRV, if its not you
> record at replacement cost. Since this was
> recorded at replacement cost, we know NRV is
> greater then replacement cost
+1

 

[CareerThruCFA]

My Answer : A