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Definition

Lower-of-cost-or market (LCM) basis

Lower-of-cost-or market (LCM) basis is a basis whereby inventory is stated at the lower of either its cost or its market value as determined by current replacement cost.

When the value of inventory is lower than its cost, companies can “write down” the inventory to its market value. This is done by valuing the inventory at the lower-of-cost-or market (LCM) in the period in which the price decline occurs. LCM is an example of the accounting concept of conservatism.

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