Are all assets on a company balance sheet reported at LCM (lower of cost or market)??

Question

Such as land and inventory?

Answer 1

Not all assets. Land, Equipment and Buildings are listed at Historical Cost (Less Accumulated Depreciation when applicable).

Inventory is listed at Lower of Cost or Market. This falls into line with the Conservatism principle of accounting which pretty much tells one to recognize losses when they become likely but only recognize gains when they are realized.

Say you are Apple and you just put out the Generation 10 iPod line. The previous generations are now worth less and command a lower price, so the inventory value might be affected due to this. The GAAP Gods are basically saying to Apple and others "recognize the losses on your inventory today."

If you are bestowed with the great opportunity to calculate this like I was, you have a several step process to determine whether the inventory needs a LCM write down.

The LCM rules originate in Accounting Research Bullitin 43 (ARB 43) which has been amended subsequently by FASB.