Question : Assertions A:- Valuation of goodwill is necessary at the time of the firm’s reconstitution because gaining partners have to complete the sacrifice partners to gain profit share.
Reason R:- Goodwill is an intangible asset which recognized in the books of account if an amount is paid for it.
In the context of the above statement, which of the following is correct?
Option 1: Assertion A and Reason R are correct but the reason R is not the correct explanation of Assertion A.
Option 2: Both Assertion A and Reason R are correct and Reason R is correct explanation of Assertions A.
Option 3: Assertion A is correct but the reason R is not correct.
Option 4: Both Assertion A and reason R are incorrect.
Correct Answer: Assertion A and Reason R are correct but the reason R is not the correct explanation of Assertion A.
Solution : Answer = Assertion A and reason R both are correct but the reason R is not the correct explanation of Assertion A.
The assertion is correct as valuation of goodwill is indeed necessary during firm reconstitution to ensure equitable distribution of profits among partners. However, the reason is not a direct explanation of the assertion, as it merely states the recognition criteria for goodwill as an intangible asset in accounting, which is not directly related to firm reconstitution.
Hence, the correct option is 1.
