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:

(A), (B) and (C) only

The correct answer is Option (2) → (A), (B) and (C) only

Goodwill is an intangible asset that represents the value of a firm's reputation and its ability to earn above-average profits.

(A) The present value of a firm's anticipated excess earnings: This statement is correct. Goodwill is essentially the price paid today for the right to receive future profits that are in excess of the normal rate of return in the industry. These "excess earnings" are known as super profits, and calculating their worth in present terms is a primary method for determining the value of goodwill.

(B) The capitalised value attached to the differential profit capacity of a business: This statement is correct. The "differential profit capacity" refers to a business's superior ability to earn profits compared to its peers. Capitalising this excess earning power (finding the capital equivalent of the super profits) is a common way to measure the value of goodwill.

(C) Goodwill exists only when the firm earns super profits: This statement is correct. The value of measurable, transferable goodwill in accounting is dependent on the firm's capacity to generate super profits ($\text{Actual Profit}>\text{Normal Profit}$). If a firm's actual profits are just at the normal industry level, it has no unique competitive advantage, and its goodwill value is considered nil.

(D) Any firm that earns normal profits or is incurring losses also has goodwill: This statement is incorrect. Since goodwill is valued based on the capacity to generate super profits, a firm that only earns normal profits has a super profit of zero. Similarly, a firm with losses has a negative super profit. In both these scenarios, the firm lacks the superior earning capacity necessary for marketable goodwill.