Identify from the following when goodwill is required to be calculated. Change in profit sharing ratio
A. Change in profit sharing ratio
B. Admission of a partner
C. Dissolution of Partnership firm
D. Amalgamation of partnership firms
E. Preparation of Balance Sheet
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → A, B, D only
Goodwill is valued whenever the partners' rights to future profits change hands or change in proportion, so that the partner who gives up a share of future profits is compensated.
A. Change in profit sharing ratio Correct. The partners who give up a share of profit are compensated by those who gain.
B. Admission of a partner Correct. The new partner pays the old partners for the share of profit they give up.
C. Dissolution of Partnership firm Incorrect. On an ordinary dissolution the business is closed and its assets are sold piecemeal, so there are no future profits to value; goodwill is valued only when the business is sold as a going concern.
D. Amalgamation of partnership firms Correct. Each firm's goodwill is valued so that its partners get their due in the combined firm.
E. Preparation of Balance Sheet Incorrect. Goodwill is not valued every year for the Balance Sheet; it is valued only on such changes.
NCERT (2026-27 edition):
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