Several inventory costing methods are acceptable for tax purposes. Financial reporting method may differ from method used for tax reporting, except LIFO may only be used for tax purposes if it is also used for financial reporting. The Consistency principle requires the use of the same accounting methods period after period so the financial statements are comparable across periods. Method change is acceptable if it will improve financial reporting. The full-disclosure principle requires statement notes reporting the type of change, its justification, and its effect on net income.
Market normally means replacement cost.
If a comparison of cost to market discloses market is lower, inventory is written down to market. The loss of inventory value is recorded as an increase to the period's cost of goods sold. Lower of cost or market pricing is applied either to the inventory as a whole, or to major categories of products or separately to each product in the inventory. The LCM is often justified with reference to the conservatism principle. Retail Inventory Method Can be used to estimate the cost of ending inventory for interim statements in a periodic inventory when a physical count is taken only annually.