Question

Name any two factors which affect the Goodwill of a partnership firm.

Answer 1

Two factors that affect the Goodwill of the firm are:

1. Time Factor: Time dimension is a factor that influences the goodwill of a firm. A comparatively older firm will enjoy a better reputation and name than a firm which has been newly constituted. An older firm has more loyal customers and maybe located with certain advantages. Hence, an older firm will have higher goodwill than a younger firm.

2. Trend of Profit: Earning capacity of a business is the most important factor while ascertaining a firm's goodwill. When there is an upward trend in the profits, the super profits ( difference between the average and normal profit) of the firm increases, which leads to an increase in the goodwill of the firm.