How does the conventional retail method approximate the$$ lower$-$of$-$cost$-$or$-$market valuation? What is the impact on ending$$ inventory?

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Part $1$

How does the conventional retail method approximate the$$ lower$-$of$-$cost$-$or$-$market valuation?

A$.$

Under the$$ lower$-$of$-$cost$-$or$-$market $($LCM$)$ conventional retail$$ method, both net markups and net markdowns are included in the calculation of the$$ cost$-$to$-$retail ratio.

B$.$

Under the$$ lower$-$of$-$cost$-$or$-$market $($LCM$)$ conventional retail$$ method, net markups are not included but net markdowns are included in the calculation of the$$ cost$-$to$-$retail ratio.

C$.$

Under the$$ lower$-$of$-$cost$-$or$-$market $($LCM$)$ conventional retail$$ method, net markups are included but net markdowns are not included in the calculation of the$$ cost$-$to$-$retail ratio.

D$.$

Under the$$ lower$-$of$-$cost$-$or$-$market $($LCM$)$ conventional retail$$ method, net markups and net markdowns are not included in the calculation of the$$ cost$-$to$-$retail ratio.

Part $2$

What is the impact on ending$$ inventory?

A$.$

The$$ lower$-$of$-$cost$-$or$-$market $($LCM$)$ conventional retail method produces higher retail numbers in the$$ denominator, lowering the$$ cost$-$to$-$retail ratio. As a$$ result, ending inventory is valued more$$ conservatively, approximating LCM. The treatment of net markdowns as an immediate$$ write$-$down in$$ value, or as a$$ loss, is also conservative in nature.

B$.$

The$$ lower$-$of$-$cost$-$or$-$market $($LCM$)$ conventional retail method produces lower retail numbers in the$$ numerator, lowering the$$ cost$-$to$-$retail ratio. As a$$ result, ending inventory is valued less$$ conservatively, approximating LCM. The treatment of net markdowns as an immediate$$ write$-$down in$$ value, or as a$$ loss, is less conservative in nature.

C$.$

The$$ lower$-$of$-$cost$-$or$-$market $($LCM$)$ conventional retail method produces lower retail numbers in the$$ denominator, raising the$$ cost$-$to$-$retail ratio. As a$$ result, ending inventory is valued less$$ conservatively, approximating LCM. The treatment of net markdowns as an immediate$$ write$-$down in$$ value, or as a$$ loss, is conservative in nature.

D$.$

The$$ lower$-$of$-$cost$-$or$-$market $($LCM$)$ conventional retail method produces higher retail numbers in the$$ numerator, raising the$$ cost$-$to$-$retail ratio. As a$$ result, ending inventory is valued more$$ conservatively, approximating LCM. The treatment of net markdowns as an immediate$$ write$-$down in$$ value, or as a$$ loss, is also conservative in nature.