Question

Need for valuation of goodwill arises in the following circumstances:
(A) Admission of a new partner
(B) Change in profit sharing ratio among the existing partners
(C) Dissolution of the partnership firm involving sale of business as a going concern
(D) Death of a partner
Choose the correct answer from the options given below:

• A. (A), (B) and (D) only
• B. (A), (B) and (C) only
• C. (A), (B), (C) and (D)
• D. (B), (C) and (D) only

Answer 1

The Correct Option is C

The need for valuation of goodwill arises in the following situations:
- Admission of a new partner (A): When a new partner is admitted, goodwill is valued to determine the contribution of the new partner and to adjust the capital accounts of existing partners.
- Change in profit sharing ratio among the existing partners (B): When partners decide to change their profit-sharing ratio, the existing goodwill must be valued to adjust the accounts fairly.
- Dissolution of the partnership firm involving sale of business as a going concern (C): In case of dissolution, goodwill needs to be valued to fairly distribute the proceeds among partners.
- Death of a partner (D): Upon the death of a partner, goodwill must be valued to settle the deceased partner’s share and adjust the remaining partners’ capital accounts.
Thus, goodwill valuation is relevant in all four circumstances.