NOTE: In 2015 the FASB issued a new rule that requires companies which use FIFO to value inventory at “lower of cost or net realizable value.” This aligns U.S. GAAP more closely with IFRS.

This video shows how to use the lower-of-cost-or-market rule to value inventory. A comprehensive example is provided to demonstrate how one determines the market value (it is the middle value from among the replacement cost, net realizable value, and net realizable value minus a normal profit) and compares it to the inventory’s original cost. The lower of the cost or market value is then determined to be the value of the inventory.