Question : Assertion (A): Any firm that earns normal profits or is incurring losses has no goodwill. Reason (R): Goodwill is the value of the reputation of a firm in respect of the profits expected in future over and above the normal profits.
Option 1: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Option 2: Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A)
Option 3: Assertion (A) is true but Reason (R) is false
Option 4: Assertion (A) is false but Reason (R) is true
Correct Answer: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Solution : Any firm that earns normal profits or is incurring losses has no goodwill. Goodwill is the value of the reputation of a firm in respect of the profits expected in future over and above the normal profits. Hence, the correct option is 1.
Question : Assertion (A): A new business is likely to have lesser goodwill. Reason (R): Goodwill is an intangible asset.
Question : Assertion (A): Goodwill requires adjustment at the time of reconstitution of a firm. Reason (R): The nature and location of business do not affect the valuation of goodwill.
Question : Assertion (A): Goodwill belongs to the category of intangible assets such as patents, trademarks, copy rights, etc. Reason (R): Goodwill cannot be seen or touched.
Question : Assertion (A): Purchased goodwill means goodwill for which a consideration has been paid. Reason (R): It is shown in Balance Sheet as a liability.
Question : Assertion (A): Goodwill is as an intangible asset. Reason (R): The goodwill is calculated by multiplying the past average profits by the number of years during which the anticipated profits are expected to accrue.
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