Select the factors affecting the value of goodwill- (A) Nature of bus…

Select the factors affecting the value of goodwill-

(A) Nature of business

(B) Efficiency of management

(D) Prices

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 profit than a normal firm. Anything that raises that earning power raises the goodwill.

(A) Nature of business Correct. A firm with high value-added products or a stable demand earns more, so its goodwill is higher.

(B) Efficiency of management Correct. Good management means high productivity and low costs, which bring higher profits and higher goodwill.

(C) Location Correct. A central place with heavy customer traffic brings more customers, so goodwill tends to be high.

(D) Prices Incorrect. The level of prices is not one of the factors of goodwill. The related factor is the market situation: a monopoly or limited competition lets a firm earn high profits.

NCERT (2026-27 edition):
Factors Affecting the Value of Goodwill – “The main factors affecting the value of goodwill are as follows: 1. Nature of business: A firm that produces high value added products or having a stable demand is able to earn more profits and therefore has more goodwill. 2. Location: If the business is centrally located or is at a place having heavy customer traffic, the goodwill tends to be high. 3. Efficiency of management: A well-managed concern usually enjoys the advantage of high productivity and cost efficiency. This leads to higher profits and so the value of goodwill will also be high.”