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Lower-of-Cost-or-Market Rule Awards Etc. carries an inventory of trophies and ribbons for local sports teams and school clubs
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Answer 1
Generally Accepted Accounting Principle allows a company to carry its inventory at an amount less than its cost if it is prevalent that the net realizable value is lower than its cost. It is called Lower of cost or market rule.
Answer 2
Asset account is affected because inventory balance is reduce.
Equity account is affected because loss is booked in income statement which reduces equity.
Answer 3
The current period income will reduce because loss will be booked due to inventory write off.
The future period income will depend on the value at which inventory will be sold.
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