In the context of accounting within the USA, the ceiling is an amount equivalent to the net realizable value of an asset. When using the lower of cost or market method for inventory valuation, the market value cannot exceed this upper limit.
The 'Lower of Cost or Market (LCM)' principle is a conservative accounting convention that dictates that inventory should be reported at either its historical cost or its current market price, whichever is lower.
The Lower of Cost or Market (LCM) accounting method involves recording inventory at its historical cost but writing it down to market value if that is lower. Market value is defined as replacement cost, capped by net realizable value (NRV) and cannot be less than NRV minus a normal profit margin.
