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

D. A new partner is admitted

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:

1. Change in the profit-sharing ratio amongst the existing partners
2. Admission of a new partner
3. The retirement of a partner
4. Death of a partner
5. Dissolution of a firm where business is sold as going concern.
6. Amalgamation of partnership firms