Accountancy Part AAdmission of a Partner

Which of the following factors affects the value of goodwill? (A). Lo…

Which of the following factors affects the value of goodwill?

(A). Location of Business

(B). Partner's Performance

(C). Nature of Business

(D). Market Situation

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → (A), (C) and (D) only

Goodwill belongs to the business as a whole: it depends on what lets the business earn more than normal profits, such as its nature, location, management and market.

(A). Location of Business Correct. A central place with heavy customer traffic brings more business and more goodwill.

(B). Partner's Performance Incorrect. Goodwill rests on the efficiency of the management of the concern as a whole; one partner’s personal performance is not a factor of the business’s goodwill.

(C). Nature of Business Correct. High value products or stable demand mean steadier, higher profits.

(D). Market Situation Correct. A monopoly or limited competition lets the 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. 4. Market situation: The monopoly condition or limited competition enables the concern to earn high profits which leads to higher value of goodwill.”