Preparing the Journal Entry to Record Lower of Cost or Market (LCM) Adjustments [LO 7-4]
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Question & Answer: Preparing the Journal Entry to Record Lower of Cost or Market (LCM) Adjustments [LO 7-…..
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During its second and third quarters of fiscal 2014, Blackberry Limited wrote down its BB10 smartphone inventory by approximately $1,700,000,000 because its cost exceeded its market value.
Loss on Inventory written down (Debit) 1700 Millions
Allowance to reduce inventory to LCM (Credit) 1700 Millions
This entry creates allowance for potential loss which had not yet realised. By writting this entry prudency concept of accountancy is honored by recording the anticipated loss.