A, B and C are sharing profits in the ratio of 3:2:2. C retires on 1st April, 2019 and C’s son D is admitted into partnership in his place and the new profit sharing ratio of A,B and D is 3:3:2. Do you think that in spite of the fact that C’s son D is admitted in his place, still goodwill will have to be valued and why?.
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Answer:
Yes goodwill will have to be valued.
Explanation:
Partnership is based on contract and its one of the important element of partnership. Someone can't be a partner on inheritance. So as C's son is joining the firm, it will be considered that the firm is starting as fully new. It is necessary to value the goodwill of the reconstituted as the profit sharing ratio is changing and gaining partners must compensate sacrificing partners.
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