Question

Assertion (A): Goodwill is an intangible but not a fictitious asset.

Reason (R): Goodwill is an intangible asset because it does not have a physical existence but it is a valuable asset because it is helpful in earning excess profits.

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

Options

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

• Both (A) and (R) are true and (R) is the correct explanation of (A).

• Both (A) and (R) are false.

• (A) is false, but (R) is true.

Answer 1

Both (A) and (R) are true and (R) is the correct explanation of (A).

Explanation:

Goodwill is an intangible asset because it does not have any physical existence, yet it holds value as it helps in earning excess profits for the business. It is not a fictitious asset since fictitious assets have no real value, whereas goodwill has measurable worth and can be sold along with the entire business.