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Lower of Cost or Market Adjustment
It is an accepted practice under Generally Accepted Accounting Principles that inventory be valued on the Balance Sheet at the lower of cost OR at its current market value or current replacement cost. Writing down the value of inventory to its market value is called an LCM (Lower of Cost or Market) adjustment. Note: GAAP does not permit companies to mark up the value of inventory to the market price. In other words, LCM adjustments are required but inventory write downs cannot be reversed at a later date either fully or partially.
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