Which of the following statements are correct in respect of goodwill?
(A) the present value of a firm's anticipated excess earnings
(B) the capitalised value attached to the differential profit capacity of a business
(C) goodwill exists only when the firm earns super profits
(D) Any firm that earns normal profits or is incurring losses also has goodwill.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B) and (C) only
Goodwill is the value of a firm's ability to earn more than the normal profit of its industry. Both standard definitions say this in different words, and it follows that a firm without super profits has no goodwill.
(A) the present value of a firm's anticipated excess earnings Correct. The excess earnings expected in future, valued today.
(B) the capitalised value attached to the differential profit capacity of a business Correct. The extra profit-earning capacity over other firms, capitalised.
(C) goodwill exists only when the firm earns super profits Correct. No profit above normal, nothing to pay for.
(D) Any firm that earns normal profits or is incurring losses also has goodwill. Incorrect. Such a firm has no goodwill; a buyer gains nothing over starting a new business of his own.
NCERT (2026-27 edition): |