Lower of Cost or Market Rule (LCM Definition, Examples, Formula)

Lower of Cost or Market Rule (LCM Definition, Examples, Formula)

We apply the conservatism principle and use Lower of Cost or Market Rule(LCM) to reduce inventory to a more realistic value and, at the same time, recognize the loss in value that has incurred. The basic assumption of the LCM method is that if the purchase price of an item falls, its selling price also falls or will fall. The LCM has long been accepted in accounting globally Under LCM, inventory items are written down to market value when the market value, is less than the cost of the items.