Question 1

What is inventory?

Accepted Answer

Inventory is all the stuff a store or company has that they plan to sell, like toys, clothes, or snacks. It's like a pile of goodies waiting for customers to buy.

Question 2

What does 'valuation' mean?

Accepted Answer

'Valuation' is a fancy word for figuring out how much something is worth. So when we talk about 'inventory valuation,' we're seeing how much the store's goodies are worth.

Question 3

What is 'lower of cost'?

Accepted Answer

'Lower of cost' is a way to decide the value of inventory by checking two prices: how much we bought it for and how much we could sell it for now. We pick the smaller number of those two.

Question 4

Why do we use 'lower of cost'?

Accepted Answer

We use it to be fair and honest about what our stuff is worth, even if it's not worth as much as before. This helps keep things simple and honest about our money.

Question 5

What happens if the selling price is less than the cost?

Accepted Answer

If the selling price is less, we choose that smaller number. It means we might not make as much money when we sell it, but that's okay because we're being honest about what it's worth.

Question 6

Where do people use the 'lower of cost' method?

Accepted Answer

Lots of stores and companies use it to keep track of their stuff's value. It's like a rule to help them know how much money they're dealing with.

Question 7

Does 'lower of cost' make the numbers smaller?

Accepted Answer

Sometimes! If our stuff isn't worth as much anymore, it might make the total number smaller. This way, we show the real value of what we have.

Question 8

Does it mean the store is losing money?

Accepted Answer

Not always. It just means being honest about what things are worth. Sometimes prices change, and that happens!

Question 9

Why don't we just use the cost we paid?

Accepted Answer

If the store can't sell items for more than they paid, it wouldn't be honest to use the higher number. Using the lower price helps us be truthful.

Question 10

What if the cost is higher than the selling price?

Accepted Answer

If the cost is higher, and we can sell for less, we pick the smaller selling price. This shows what people are willing to pay now.

Question 11

Is finding the 'lower of cost' hard?

Accepted Answer

Not really! You just compare two amounts: the cost and the selling price, then pick the smaller one. It’s like a fun math game!

Question 12

Does 'lower of cost' happen all the time?

Accepted Answer

Yes, companies check often to make sure their numbers are correct and honest. It keeps everything up-to-date.

Question 13

Can the value change later?

Accepted Answer

Yes, if the prices change, we can look again and choose the lower one. It helps us keep everything accurate.

Question 14

Do all companies use the 'lower of cost' rule?

Accepted Answer

Most companies use it because it's a trusted way to know how much things are worth. It's like a helpful guide.

Question 15

Does this affect how much a store earns?

Accepted Answer

It shows the real value of what they own, so they might earn less if prices drop. It's better to be honest in the long run.

Question 16

What if the selling price goes up later?

Accepted Answer

If prices go up, companies can update the value. But they always pick the lower price at the time they check.

Question 17

Do we always have to pick the lower price?

Accepted Answer

Yes, it's part of being fair and honest about how much stuff is worth. It makes sure we're truthful with money.

Question 18

Will my toys be worth less later?

Accepted Answer

Sometimes toys can be worth less if new toys come out or if they get older. It's like when things go on sale!

Question 19

How does 'lower of cost' help a business?

Accepted Answer

It helps businesses know exactly how much their stuff is worth so they can plan and grow. It's like making sure their piggy bank is correct!

Question 20

Is being honest about inventory important?

Accepted Answer

Yes, being honest helps businesses make better decisions. It keeps everyone, even customers, happy because they know what to expect!

Inventory valuation using the lower of cost - 20 FAQs Explained Simply