Valuation of Inventories

[Salil]

When valuing inventories using the lower-of-cost-or market (LCM), which of the following is/are true?
I. The inventory value cannot exceed the net realizable value.
II. If the inventory is written down from cost, the value of the inventory cannot fall below the net realizable value.
III. Inventories can only be written back up to the original cost.
IV. Write-downs are charged directly to retained earnings account.

According to me the answers are I, II and III. However, the answer given is I and III. Can someone explain?

 

[Salil]

Got the answer.

In valuation using tha "market value method" - the value cannot exceed the net realiazable value and cannot fall below the (net realizabale value - normal profit margin).

This is tricky!