What is the LCNRV concept and when is impairment recognized?

• A. Inventory reported at cost or NRV, whichever is higher.
• B. Inventory is reported at cost only; impairment recognized when cost > NRV.
• C. The LCNRV concept states inventory is reported at the lower of cost or NRV; impairment recognized when NRV < cost.
• D. Inventory is measured at NRV only; impairment recognized when NRV > cost.

Answer: (C)

The main idea here is the LCNRV rule: inventory is carried at the lower of its cost or its net realizable value. Net realizable value is the estimated selling price in the ordinary course of business minus the costs to complete, dispose of, and transport the item. If the NRV falls below cost, you recognize an impairment by writing the inventory down to NRV.

This is best because it prevents overstating assets when market conditions or product conditions reduce what you can actually recover from sale. For example, if inventory costs $100 but its NRV is $90, you record a $10 write-down to 90, typically affecting cost of goods sold (no automatic reversal under GAAP). The other statements would either imply valuing at the higher amount, or at NRV only, or ignore the need to compare cost to NRV, which isn’t consistent with LCNRV.