Mention any four factors that affect the value of goodwill of a firm. PLEASE ANSWER CORRECTLY.
Answers
Answer:
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Explanation:
the four factors are
1. Locational Factor:
If the firm is centrally located or located in a very prominent place, it can attract, more customers resulting in an increase in turnover. Therefore, locational factor should always be considered while ascertaining the value of goodwill.
2. Time Factor:
Time dimension is another factor which influences the value of goodwill. The comparatively old firm will enjoy more commercial reputation than the other one since the old one is better known to its customers although both of them may have the same locational advantages.
3. Nature of Business:
ADVERTISEMENTS:
This is another factor which also influences the value of goodwill which includes:
(i) The nature of goods;
(ii) Risk involved;
(iii) Monopolistic nature of business;
ADVERTISEMENTS:
(iv) Benefits of patents and Trademarks; and
(v) Easy access of raw materials, etc.
4. Capital Required:
More buyers may be interested to purchase a business which requires comparatively small amount of capital but rate of earning profit is high and, consequently, raise the value of goodwill. On the contrary, for a business which requires large amount, of capital but the rate of earning profit is comparatively less, no buyer will be interested to have the business and, hence, goodwill of the said firm is pulled down.
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