How should inventory be valued according to accounting standards?

Inventory should be valued according to the accounting standards at the lower of cost or net realizable value. This approach ensures that inventory is not overstated in the financial statements.

The cost of inventory includes all expenditures directly attributable to bringing the inventory to its current condition and location. However, if the net realizable value (NRV) of the inventory, which is the estimated selling price in the ordinary course of business minus any estimated costs of completion and sale, falls below the cost, then the inventory should be written down to its NRV. This conservative approach helps to reflect potential losses in inventory value and provides a more accurate picture of a company's financial situation.

This principle is established under International Financial Reporting Standards (IFRS) and generally accepted accounting principles (GAAP), promoting prudent financial reporting.