Question

Which of the following factor generally contribute to the value of goodwill of a firm?

• A. Quality of goods sold by the firm.
• B. Reputation of the owners.
• C. Risk involved in the business.
• D. All of the above.

Answer 1

The correct option is D All of the above.

Goodwill is the value of reputation of a firm in respect of profits expected in future over and above the normal rate of profits. The implication of the term over and above is that there is always a certain normal rate of profits earned by similar firms in the same locality. The excess profit earned by a firm due to its location advantage, Efficiency of business, Risk involved in business, better customer service, possession of a unique patent right, personal reputation of the partner or for similar other reasons.