Why investment in current assets or cost of inventory sold during the year by business firms are not included in expenditure method? In inventory investment also we only include stock which is lying with the producer.explain
Dear Student
Investment in current assets or cost of inventory is not included in expenditure method because in expenditure method, we include those investments which adds to the physical stock of real capital. This includes non residential fixed investment , residential fixed investment and change in inventories.
In inventory investment we include stock lying with the producer : Because the change in business inventories is investment . If a firm has goods that are unsold or lying with the producer, that will be considered as positive investment .
Hope this information will clear your doubts on this topic.
If you have any more doubts just ask on the forum and our experts will try to help you out as soon as possible.
Regards
Investment in current assets or cost of inventory is not included in expenditure method because in expenditure method, we include those investments which adds to the physical stock of real capital. This includes non residential fixed investment , residential fixed investment and change in inventories.
In inventory investment we include stock lying with the producer : Because the change in business inventories is investment . If a firm has goods that are unsold or lying with the producer, that will be considered as positive investment .
Hope this information will clear your doubts on this topic.
If you have any more doubts just ask on the forum and our experts will try to help you out as soon as possible.
Regards