Lower-of-Cost-or-Market (LCM) Rule

The lower-of-cost-or-market rule can be applied to the above methods of determining inventory at cost. This rule states that if the replacement cost (market) of the inventory is lower than the inventory cost, the lower figure should be used. Valuation can be determined on an item-by-item or major category basis.

• Item-by-Item Method
• Major Category Method