Which of the following is not the main factors affecting the value of…

Which of the following is not the main factors affecting the value of Goodwill?

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → Efficiency of Management of non-competitive firms

Goodwill is high where a firm can earn more than others. The recognised factors are the nature of business, location, efficiency of management, market situation and special advantages.

Option (1) Nature of Business A recognised factor. A business with high value-added products or stable demand earns more and has more goodwill.
Option (2) Location A recognised factor. A central location with heavy customer traffic raises goodwill.
Option (3) Market situation A recognised factor. A monopoly or limited competition lets the firm earn high profits, raising goodwill.

The recognised term is “Efficiency of management”, the firm’s own good management. NTA added “of non-competitive firms”, which turns it into something about other firms, so the option no longer states a factor and is the odd one out.

Read every word of a familiar term; one added phrase can change what it means.

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.”