Goodwill is recognized in partnership accounts when
-
A.
The business makes a huge profit -
B.
The business has good customer relationship -
C.
A partner is dormant -
D.
A new partner is admitted
Correct Answer: Option D
Explanation
Goodwill is recorded in the books only when some consideration in money or money’s worth is paid for it. Thus, in the context of a partnership firm, the need for valuation of goodwill arises at the time of:
- Change in the profit sharing ratio amongst the existing partners
- Admission of a new partner
- The retirement of a partner
- Death of a partner
- Dissolution of a firm where business is sold as going concern.
- Amalgamation of partnership firms