Which of the following describes LCNRV for inventories?

• A. Lower of cost and NRV; write down when NRV < cost
• B. Lower of NRV and replacement cost
• C. Lower of cost and NRV; write down when NRV > cost
• D. Lower of NRV and selling price

Answer: (C)

LCNRV means you compare what the inventory cost you paid with what you can realistically recover from selling it. The value used for comparison is the net realizable value, which is the estimated selling price minus the costs to complete and sell. You record the lower of the two amounts as the carrying value. You only write down if NRV is less than cost; you do nothing if NRV is equal to or greater than cost (you don’t write up to NRV). In short, you write down to NRV when the NRV falls below cost. This protects the books from overstating inventory and reflects the conservatism principle.