unrealized profit derived from holding inventory during a price rise. One measure of inventory profit is the difference between the original cost and the higher current replacement cost. Another measure is the increased value arising from the increase in the Consumer Price Index (CPI) since the acquisition date. Assume that on 1/1/2005, inventory was bought for $50,000. On 12/31/2005, the replacement cost is $54,000. The inventory profit is $4000.
Dictionary of Accounting Terms for: inventory profit