Accountancy Part AAdmission of a Partner

Value of Goodwill is affected by : (A) Location of the Business(B) Ef…

Value of Goodwill is affected by :

(A) Location of the Business
(B) Efficiency of Management
(C) Salaries of Partners
(D) Capital Contribution of Partners
(E) Market Situation

Choose the correct answer from the options given below :

Answer & explanation

Correct answer: option 2

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

(A) Location of the Business — affects goodwill: a central location brings more customers and profits.

(B) Efficiency of Management — affects goodwill: good management means higher productivity and profits.

(C) Salaries of Partners — does not affect goodwill: it is a matter of the partners’ agreement, not of the firm’s earning capacity.

(D) Capital Contribution of Partners — does not affect goodwill: how much each partner put in decides the ownership of capital, not the firm’s reputation.

(E) Market Situation — affects goodwill: monopoly or limited competition allows higher profits.

NCERT (2026-27 edition):
Factors Affecting the Value of 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.”