There is a need for valuation of goodwill under which of the following cases.
(A) Admission of new partner
(B) Retirement of a partner
(C) Dissolution of a firm involving sale of business as a going concern.
(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 is an intangible asset that represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. 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.