Question

Assertion (A): Increasing the value of closing inventory increases profit.

Reason (R): Increasing the value of closing inventory reduces cost of goods sold.

In the context of the above two statements, which of the following is correct?

Options

• Both (A) and (R) are correct and (R) is the correct reason of (A).

• Both (A) and (R) are correct but (R) is not the correct reason of (A).

• Only (R) is correct.

• Both (A) and (R) are wrong.

Answer 1

Both (A) and (R) are correct and (R) is the correct reason of (A).

Explanation:

Closing inventory is deducted while calculating Cost of Goods Sold. If closing stock value increases, the cost of products sold decreases, resulting in increased gross profit and net profit. As a result, both assertion and reasoning are correct, and reasoning accurately explains assertion.