Accountancy Part AAdmission of a Partner

In the context of a partnership firm, need for valuation of goodwill…

In the context of a partnership firm, need for valuation of goodwill arises in the following circumstances.

A. Change in the profit sharing ratio among the existing partners.

B. Admission of new partner

C. Retirement of a partner

D. Amalgamation of partnership firms

E. When firms earns super profits.

Choose the correct answer from the options given below :

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → A, B, C and D only

Goodwill has to be valued whenever the partners’ rights in the firm’s future profits change or the business changes hands.

A. Change in the profit sharing ratio among the existing partners. — True. The gaining partners compensate the sacrificing ones for goodwill.

B. Admission of new partner — True. The new partner pays for his share of goodwill.

C. Retirement of a partner — True. The retiring partner is paid his share of goodwill.

D. Amalgamation of partnership firms — True. Each firm’s goodwill is valued before they combine.

E. When firms earns super profits. — False. Super profit is a basis of one method of valuing goodwill, not an occasion that calls for its valuation.

NCERT (2026-27 edition):
Need for Valuation of Goodwill

Extract from the NCERT textbook

NCERT (2026-27 edition):
Super Profits Method – “… But it is contended that the buyer’s real benefit does not lie in total profits; it is limited to such amounts of profits which are in excess of the normal return on capital employed in similar business. Therefore, it is desirable to value, goodwill on the basis of the excess profits and not the actual profits.”