Question

Assertion (A): Purchase of Goodwill is classified as Investing Activity in case of all the enterprises.

Reason (R): Purchase of Goodwill by a finance company is classified under ‘Financing Activity’ while preparing Cash Flow Statement.

In the context of the above two statements, which option is correct?

विकल्प

• Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).

• Assertion (A) is correct, but Reason (R) is not correct.

• Assertion (A) is not correct but the Reason (R) is correct.

Answer 1

Assertion (A) is correct, but Reason (R) is not correct.

Explanation:

Assertion (A) is true because goodwill is a long-term intangible asset, so buying it is always an Investing Activity for any company. Reason (R) is false because buying goodwill is never a financing activity; even for a finance company, it remains an investing activity.