Assertion: At the time of admission of a partner, the value of goodwill of the firm is determined.
Reasoning: Goodwill of the firm is valued at the time of admission as the new partner is the gaining Partner and he will compensate the Sacrificing Partner or Partners for loss of their share in profits.
Reasoning: Goodwill of the firm is valued at the time of admission as the new partner is the gaining Partner and he will compensate the Sacrificing Partner or Partners for loss of their share in profits.
Answer & explanation
Correct answer: option 1
The incoming partner who acquires his share in the profits of the firm from the existing partners brings in additional amount to compensate them for loss of their share in profits. It is termed as his share of goodwill (also called premium for goodwill).