Valuation of Goodwill takes place on which of the following occasions:
A. Incorporation of a new business
B. Change in profit sharing ratio
C. Amalgamation of partnership firm
D. Admission of a partner
E. Dissolution of firm or closure of business
Choose the correct answer from the options given below.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → B, C, and D only
Goodwill is valued whenever the partners’ rights in the firm’s future profits change hands, or when the business itself changes hands as a going concern.
A. Incorporation of a new business — Incorrect. A business that is only just being set up has no reputation or past profits yet, so there is no goodwill to value.
B. Change in profit sharing ratio — Correct. The gaining partners must compensate the sacrificing partners for their share of goodwill.
C. Amalgamation of partnership firm — Correct. Each firm’s goodwill is valued so that its partners get credit for it in the combined firm.
D. Admission of a partner — Correct. The new partner pays for the share of goodwill he acquires from the old partners.
E. Dissolution of firm or closure of business — Incorrect. Goodwill is valued on dissolution only when the business is sold as a going concern; a business that is closed down has no goodwill to sell.
NCERT (2026-27 edition):
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