Suraj and Dilip are partners in firm dealing in stationary items. The firm is well managed and enjoys the advantage of being cost effective. It buys stationery items at resonable cost from Dilip's relative who is a manufacturer of stationary items. The firm's sale outlet is situated near a school. As a result, the firm has a steady demand of stationary items and is earning good profits. the firm is donating $10 %$ of its profit to the nearby school for the education of the students of below poverty line. State any two factors affecting the value of goodwill of the firm.

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Solution

Two factors affecting the value of Goodwill of the firm:
1. Capital Required:
When the profits of the business is higher compared to the investment of the company, the value of goodwill is higher than the business earning less amount of profits compared to its capital.
2. Management Efficiency:
Management efficiency leads to earning of higher profits, which increases the value of goodwill of the firm. This efficiency is reached through planned production, proper distribution of goods, and services provided by the firm. When the management is able, competent and efficient, goodwill of the firm increases.

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