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.
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