Which statement among the following is NOT true about Goodwill?

Goodwill can exist when the firm does not earn super profits, means any firm that earns normal profits or is incurring losses has goodwill

The correct answer is option 3- Goodwill can exist when the firm does not earn super profits, means any firm that earns normal profits or is incurring losses has goodwill.

'Goodwill can exist when the firm does not earn super profits, means any firm that earns normal profits or is incurring losses has goodwill' is not true about goodwill as goodwill exists only when the firm earns super profits. Any firm that earns normal profits or is incurring losses has no goodwill.

Over a period of time, a well-established business develops an advantage of good name, reputation and wide business connections. This helps the business to earn more profits as compared to a newly set up business. In accounting, the monetary value of such advantage is known as “goodwill”. It is as an intangible asset. In other words, goodwill is the value of the reputation of a firm in respect of the profits expected in future over and above the normal profits. It is generally observed that when a person pays for goodwill,  he/she pays for something, which places him in the position of being able to earn super profits as compared to the profit earned by other firms in the same industry. 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.