Lower of cost or market definition including break down of areas in the definition. Analyzing the definition of key term often provides more insight about concepts. Lower of cost or marked can be defined as: Required method to report inventory at market replacement cost when the market cost is lower than recorded cost. The lower of cost or market principle is a kind of conservative principle meaning the lower of cost or market tries to error on the company under reporting assets, looking worse. The reason for principles like lower of cost or market is so that there is less likelihood to deceive outside users, investors and creditor, by overstating the financial position. Lower of cost or market will report inventory at the lower of the cost or market value, replacement cost. Inventory is first recorded at cost when purchased, that being the market price at the time of purchase but it is possible for the inventory value to decrease below the cost before the inventory is sold.