Choice "B" is correct. Statement I is false. If the replacement cost is the market value and inventory is reported at replacement cost, then the replacement cost is lower than the original cost. Statement II is true. The replacement cost is designated as market value if it is less than the net realizable value and greater than the net realizable value minus disposal costs. Since the inventory is reported at replacement cost, then replacement cost must be the market value (and lower than the original cost) and thus less than the net realizable value.
