Question

write any four factors affecting the value of goodwill ?
explain ​

Answer 1

Answer:

. 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:

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;

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(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.

5. Trend of Profit:

Value of goodwill may also be affected due to the fluctuation in the amount of profit (i.e. on the basis of rate of return). If the trend of profit is always rising, no doubt value of goodwill will be high, and vice versa.

6. Efficiency of Management:

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The efficient management may also help to increase the value of goodwill by increasing profits through proper planned production, distribution and services. Therefore, in order to ascertain the value of goodwill, it must be noted that such efficiency in management must not be stopped.

7. Other Factors:

(i) Condition of the money market;

(ii) Possibility of competition;

(iii) Government policy; and

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(iv) Peace and security in the country.

Answer 2

Answer:

I) Location

II) Time

III) Nature of business

IV) Capital required