There are two statements marked as Assertion (A) and Reason (R). Mark your answer as per the options given below.
Assertion (A): While calculating average profit any abnormal gain is deducted from the particular profit of the year.
Reason (R): Abnormal gain shows profit of any year in excess which cannot be earned in normal course.
Answer & explanation
Correct answer: option 1
For calculating value of Goodwill based on the profits of the organisation, one has to consider only the Normal Profits. Therefore, any type of abnormal loss is added back, and any type of abnormal gain is reduced from the given Profits to compute Normal Profits for the given period.