(a) SFAC 5 establishes five different attributes on which
assets can be measured. The attribute used should be determined
by the nature of the item and the relevance and reliability of the
attribute measured. The five attributes are historical cost, current
cost, current market value, net realizable value, and present value.
Historical cost is defined as the amount of cash, or its equivalent,
paid to acquire an asset. Reporting inventory at lower of cost or
market is a departure from the historical cost principle as the inventory
could potentially be carried at the market value if lower.
Although, reporting inventory at lower of cost or market does not
create a departure from conservatism as this method carries at
inventory the lowest or most conservative value. The use of LCM
does not violate the principle of consistency either, as it would be
reported on this basis continually. Finally the use of LCM would
not violate the principle of full disclosure as its use would be discussed
in the footnotes.