Unstable Ltd has decided to change its depreciation method from straight-line to reducing balance.As a result,its annual depreciation expense increases by $200 000.The company's income tax rate is 30 per cent.
-What is the effect on the inventory turnover ratio?
A) It increases.
B) It decreases.
C) There is no effect.
D) It cannot be determined from the information provided.

Question

Quizplus · Accepted Answer

The change in depreciation method only affects the income statement and does not have any impact on the inventory, which is a balance sheet account. Therefore, the inventory turnover ratio, which is calculated using inventory on the balance sheet and cost of goods sold on the income statement, remains the same.

Unstable Ltd Has Decided to Change Its Depreciation Method from Straight-Line