Question : Assertion (A): Weighted average profit method is considered better than the simple average profit method because it assigns more weightage to the profits of the latest year which is more likely to be earned in future. Reason (R): The highest weight is attached to the profit of the most recent year.
Option 1: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Option 2: Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion
Option 3: Assertion (A) is true but Reason (R) is false
Option 4: Assertion (A) is false but Reason (R) is true
Correct Answer: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Solution : Weighted average profit method is considered better than the simple average profit method because it assigns more weightage to the profits of the latest year which is more likely to be earned in future and the highest weight is attached to the profit of the most recent year. Hence, the correct option is 1.
