Question

State any two factors affecting the value of Goodwill of a firm.

Answer 1

Goodwill is the value of reputation of a firm in respect of profits expected in future over and above the normal rate of profits.

There are various factors which affect goodwill:

1. Customer service - If any business provides better customer services such as after sales services, early services, etc. then it will raise goodwill of the firm and attract more customers

2. Location - If the business is centrally locaed or located in a busy area, it can attract more customers and hence results in more profit. Therefore, locational factor has to be considered as ba factor while valuing goodwill.