Question

Assertion (A): Goodwill is an intangible asset.

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

In the context of the above statements which of the following is correct?

Options

• Both (A) and (R) are correct.

• (A) is wrong, but (R) is correct.

• (A) is correct but (R) is wrong.

• Both (A) and (R) are wrong.

Answer 1

Both (A) and (R) are correct.

Explanation:

Since it cannot be physically touched, goodwill is an intangible asset. It is determined by dividing the firm's reputation by its earnings.