Advertisements
Advertisements
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?
Options
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.
Advertisements
Solution
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.
