Question : Change in the inventory of a firm is treated as ____________.
Option 1: disinvestment
Option 2: investment
Option 3: liability
Option 4: asset
Correct Answer: investment
Solution : The correct answer is investment .
Any changes to a company's inventory are considered investments. For all inventories that are comparable and intended for use by the entity, a corporation must apply the same cost formula. Using the weighted average cost or Last-in First-out (LIFO) inventory valuation method may lead to differing values for the cost of sales and ending inventory for the inventory accounting system (periodic or perpetual).
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