Question

Write any four causes of creation of goodwill.​

Answer 1

Answer:

1. Location of the business : A business which is located in a suitable location will have a more favourable chance of higher goodwill than a business located in a remote location.
2. Quality of goods and services: A business which is providing a higher quality of goods and services stands a great chance of earning more goodwill than competitors who provide inferior goods and services.
3. Efficiency of management : An efficient management results in increase in profit of the business which enhances the goodwill of the business.
4. Business Risk : A business having lesser risk has a better chance of creating goodwill than a high risk business.
5. Nature of business: It means the type of products that business deals with, the level of competition in the market, demand for the products and the regulations impacting the business. A business having a favourable outcome in all these areas will have a greater goodwill.
6. Favourable Contracts: A firm will enjoy a higher goodwill if it has access to favourable contracts for sale of products.
7. Possession of trade mark and patents : Firms that have patents and trademarks will enjoy monopoly in the market, which will contribute to the increase in the goodwill of the firm.
8. Capital : A firm with a higher return on investment along with lesser capital investment will be considered by buyers as more profitable and having more goodwill.

Answer 2

(1) Location

(2) Time

(3) Nature of Business

(4) Capital Required

(5) Trend of Profit

(6) Efficiency of Management

(7) Others.

(i) Condition of the money market;

(ii) Possibility of competition;

(iii) Government policy; and

(iv) Peace and security in the country.