FAR Inventory · Updated November 2026
Lower of Cost or NRV vs Market: Which Rule Do You Use?
Choose the inventory measurement framework before comparing any numbers.
Cost vs NRV
Inventory other than certain LIFO or retail-method inventory generally uses lower of cost and net realizable value under applicable GAAP.
LIFO and retail
Certain inventory measured using LIFO or the retail method continues to use the lower-of-cost-or-market framework.
Ceiling
Market cannot exceed net realizable value.
Floor
Market cannot fall below net realizable value minus normal profit margin.
Designated market
Replacement cost is constrained by the ceiling and floor. Compare the designated market amount with cost.
The takeaway
FIFO or average-style inventory often points to cost vs NRV. LIFO or retail points to cost vs market.
Related Summit guides
FAQ
Does every inventory method use lower of cost or market?
No.
What is the market ceiling?
Net realizable value.
What is the market floor?
NRV minus normal profit margin.