Question

Assertion (A): Goodwill is an intangible asset.

Reason (R): Goodwill is the value of the reputation of a firm in respect of profits expected in future over and above the normal profits.

Choose the correct option from the following:

• A. Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
• B. Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
• C. Assertion (A) is incorrect, but Reason (R) is correct.
• D. Assertion (A) is correct, but Reason (R) is incorrect.

Hint:

Goodwill is a value of reputation with no physical form, so it is intangible.

Answer 1

The Correct Option is A

Step 1: Check the Assertion:
Goodwill cannot be seen or touched. It has a value but no physical form. So it is an intangible asset, and (A) is correct.

Step 2: Check the Reason:
Goodwill is the value of the reputation of a firm in terms of the profit expected in future over and above the normal profit. This is the standard definition, so (R) is correct.

Step 3: Check the link:
Because goodwill is only a reputation value, it has no physical existence. That is the reason it is called intangible. So (R) explains (A).

Step 4: Why the other options are wrong:
(B) says R does not explain A, but it does.
(C) says A is incorrect, but goodwill is intangible.
(D) says R is incorrect, but R is the correct definition.

Final Answer:
Both (A) and (R) are correct and (R) explains (A), which is option (A).