Question : Assertion (A): Abnormal loss of a year should be subtracted from the net profit of the year for the calculation of goodwill. Reason (R): Future profits depend upon the average performance of the business in the past.
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
Option 3: Assertion (A) is true but Reason (R) is false
Option 4: Assertion (A) is false but Reason (R) is true
Correct Answer: Assertion (A) is false but Reason (R) is true
Solution : Abnormal loss of a year should be added to the net profit of the year for the calculation of goodwill. and the future profits depend upon the average performance of the business in the past. Hence, the correct option is 4.
Question : Assertion (A): A new business is likely to have lesser goodwill. Reason (R): Goodwill is an intangible asset.
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.
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 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.
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