If average profit is lower than normal profit, what is the correct conclusion about goodwill under the super profit method?

Correct answer: There is no super profit, so goodwill is treated as zero

Under the super profit method, super profit means the excess of maintainable average profit over normal profit. It is calculated as Average Profit minus Normal Profit, and goodwill is generally calculated as Super Profit multiplied by the agreed number of years’ purchase. If average profit is below normal profit, this difference is negative; the business is earning less than the return normally expected on its capital. In the usual school-level treatment, no positive super profit exists, so goodwill is taken as nil, making option A correct. Options B, C and D confuse goodwill with average profit, normal profit or capital, none of which is the required basis here.