Accountancy Part AAdmission of a Partner

Any firm that earns normal profits or is incurring losses has........…

Any firm that earns normal profits or is incurring losses has..........

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → No goodwill

Goodwill is the value of a firm’s ability to earn more than the normal profit of its industry (super profits). A firm that earns only the normal profit, or makes losses, has no such advantage, so its goodwill is nil.

NCERT (2026-27 edition):
Meaning of Goodwill – “… 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.”