The floor to be used in applying the lower-of-cost-or-market method to inventory is determined as the selling price less costs of completion and disposal. net realizable value less normal profit margin. replacement cost. net realizable value.
The net realized values are a measure of the fixed or the current assets worth held in inventory and the term market refers to the replacement costs. Being a conservative approach and a reporting inventory its stated as a historical cost.
As NRV is an estimated selling price is minused by the costs of the completion and disposal, and the transportation or the NRV less is the marginal profit margin also called as the floor.
