Accountancy Part AAdmission of a Partner

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

Which of the following factors affects the value of goodwill?

(A) Location of Business

(B) Partners Performance

(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 is the value of a firm’s ability to earn more than a normal business. So the factors that affect it are those that make the firm’s profits higher or steadier.

(A) Location of Business — True. A central location or a place with heavy customer traffic brings more sales, so goodwill tends to be high.
(B) Partners Performance — False. It is not one of the factors that affect goodwill. What counts is the efficiency of management of the business as a whole, which shows in its productivity and costs, not the personal performance of the partners.
(C) Nature of Business — True. A firm with high value-added products or a stable demand earns more profit.
(D) Market Situation — True. 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.”