Q.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.
You're viewing a preview — the full solution, concept, methods & PYQ mapping are locked.
Start your 14-day free trial to unlock the full solution →Goodwill is indeed an intangible asset, and the reason given correctly explains why — it is the value of a firm’s reputation that generates above-normal future profits.
Let’s begin with the assertion. In accounting, assets are classified as tangible or intangible. Tangible assets have physical substance — land, machinery, cash. Intangible assets do not; they are non-physical rights or advantages that bring economic benefit. Goodwill fits this definition perfectly: you cannot touch or see it, yet it has real value because it represents the firm’s ability to earn more than the average business in its industry. The NCERT textbook for Class 12 Accountancy (Part II) explicitly lists goodwill under “Intangible Assets” in the balance sheet format. So Assertion (A) is correct.
Now the reason. Goodwill arises from a firm’s reputation — its brand name, customer loyalty, location, quality of products, and management efficiency. These factors allow the firm to earn super profits, i.e., profits above the normal rate of return expected in that line of business. The textbook defines goodwill as “the value of the reputation of a firm in respect of the profits expected in future over and above the normal profits.” That is exactly what Reason (R) states. So Reason (R) is also correct. …
Unlock everything free for 14 days
- Full step-by-step solutions
- Concept-first explanations
- Methods, shortcuts & mistakes
- PYQ mapping + timed mock tests
Full access for 14 days. No credit card required.