There are two statements marked as Assertion (A) and Reason (R). Mark your answer as per the options given below.
Assertion (A): Goodwill is calculated on the admission of any new partner only.
Reason (R): In the case of retirement of any old partner, no treatment of goodwill is done because they were already present in the business.
Answer & explanation
Correct answer: option 3
Normally, the need for valuation of goodwill arises at the time of sale of a business. But, in the context of a partnership firm it may also arise in the following circumstances:
1. Change in the profit-sharing ratio amongst the existing partners.
2. Admission of new partner.
3. Retirement of a partner.
4. Death of a partner.
5. Dissolution of a firm involving sale of business as a going concern.
6. Amalgamation of partnership firms