The goodwill exists only when the firm earns ...............
Answer & explanation
Correct answer: option 3
The correct answer is option 3- Super profit.
In simple words, goodwill can be defined as “the present value of a firm’s anticipated excess earnings” or as “the capitalised value attached to the differential profit capacity of a business”. Thus, goodwill exists only when the firm earns super profits. Any firm that earns normal profits or is incurring losses has no goodwill.