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Questions
State any three circumstances other than (i) admission of a new partner; (ii) retirement of a partner and (iii) death of a partner, when need for valuation of goodwill of a firm may arise.
State any three circumstances other than (i) death of a partner; (ii) admission of a partner and (iii) retirement of a partner, when need for valuation of goodwill of a firm may arise.
List the circumstances under which need for valuation of goodwill of the firm may arise.
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Solution
Valuation of goodwill is also arises in the following cases:
(i) When the partnership firm is sold to some other concern on going concern basis.
(ii) When two firms amalgamate that is merger or acquisition of two businesses.
(iii) When the existing partners in the firm jointly agree to change the profit sharing ratio between them.
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Method under which calculation of goodwill is done on the basis of extra profit earned above the normal profit.
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| ? | = | `"Total Profit"/"Number of Years"` |
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P: The normal profits of a similar firm in the industry.
Q: The average profits of the firm.
R: The number of years purchase.
S: The actual capital employed in the business.
