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.
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