Accountancy Part AAdmission of a Partner

There is a need for valuation of goodwill under which of the followin…

There is a need for valuation of goodwill under which of the following cases.

(A) Admission of new partner

(B) Retirement of a partner

(D) Amalgamation of partnership firms

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)

Goodwill has to be valued whenever the rights of the partners in the future profits change, or the business itself passes to someone else.

(A) Admission of new partner — a case: the newcomer pays for the share of profits the old partners give up.
(B) Retirement of a partner — a case: the retiring partner is paid for his share of goodwill.
(C) Dissolution of a firm involving sale of business as a going concern — a case: the buyer pays for the goodwill of the running business.
(D) Amalgamation of partnership firms — a case: the goodwill of each firm is valued to fix the partners’ shares in the new firm.

NCERT (2026-27 edition):
Need for Valuation of Goodwill – “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; and 5. Dissolution of a firm involving sale of business as a going concern. 6. Amalgamation of partnership firms.”