One flaw in the inventory system of amortization is that current market fluctuations, rather than the effect of wear and tear, may be dominant.

Question

Quizplus · Accepted Answer

Amortization is a method of allocating the cost of an asset over its useful life to reflect its diminishing value or its wear and tear. However, the inventory system of amortization does not consider the effect of current market fluctuations on the value of the asset. Instead, it solely focuses on the useful life and wear and tear of the asset. This means that if there are significant market fluctuations that affect the value of the asset, the inventory system of amortization may not accurately reflect the true value of the asset. Therefore, the statement that current market fluctuations may be dominant rather than the effect of wear and tear is true.

One Flaw in the Inventory System of Amortization Is That