Accountancy Part AAdmission of a Partner

Out of the following, when will the need for valuation of goodwill no…

Out of the following, when will the need for valuation of goodwill not arise:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → Dissolution of partnership firm

Goodwill is valued whenever partners’ rights to future profits change. On dissolution the firm comes to an end, so there are no future profits to share; goodwill is valued only if the business is sold as a going concern, which is not stated here.

Option (1) Admission of a partner — Goodwill is valued. The new partner pays for his share of goodwill.
Option (2) Retirement of a partner — Goodwill is valued. The retiring partner is paid his share of goodwill.
Option (4) Death of a partner — Goodwill is valued. The deceased partner’s executors get his share of goodwill.

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.”