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What is the usual effect of a poor business reputation on a firm’s goodwill?

Answer and explanation

Correct answer: Goodwill decreases

A good reputation builds customer trust, sales and expected future earning capacity, making it an important basis of goodwill. Therefore, a poor reputation generally reduces goodwill by lowering trust and expected profits. Option B is incorrect because goodwill does not always double, and it does not automatically turn into cash. Exam tip: Reputation, location, quality and customer loyalty are common factors affecting goodwill.

Related tags

GoodwillReputationPartnership AccountsBusiness ReputationAccounting BasicsPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq

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