Q.On what occasions does a partnership firm need to value its goodwill? Explain briefly.

Only purchased goodwill can be recorded; self-generated goodwill cannot be brought into the books.

In the TN HSC Class-12 Accountancy syllabus (Goodwill in Partnership Accounts), goodwill is the value of a firm's reputation that lets it earn more than the normal return.

• Purchased / Acquired goodwill arises when a business is bought and the buyer pays more than the net asset value; that excess is a real cost, so it is recorded as an asset.

• Self-generated (internally generated) goodwill is built up by the firm's own efforts over time. Because no money is spent to acquire it and its value cannot be measured objectively, the prudence/cost principle bars it from being recorded in the books.

• Options (b) and (c) — acquired and purchased goodwill — are the same recordable type, so the one that cannot be recorded is self-generated goodwill.

Goodwill is an intangible asset — it has no physical form but real value; the other three statements are false.

Goodwill is the monetary value of a firm's reputation, customer connection and earning capacity above the normal return. Checking each option:

• (a) False — it is not fictitious; fictitious assets (like preliminary expenses) have no real value, whereas goodwill has real, realisable value.
• (b) True — goodwill has value and can be bought/sold but has no physical substance, so it is an intangible asset.
• (c) False — goodwill can be acquired (purchased goodwill arises on buying a business).
• (d) False — it is a long-term (non-current) asset, not a current asset.

This nature-of-goodwill point is core to the Tamil Nadu HSC Class-12 Accountancy goodwill chapter.

The odd one out is the Fixed capital method (a), because the other three are goodwill-valuation methods.

Three of the four items belong together as methods of valuing goodwill:

• Average profit method
• Super profit method
• Capitalisation method

The fixed capital method, however, is a way of maintaining partners' capital accounts (capital fixed, adjustments routed through current accounts) — it has nothing to do with valuing goodwill. Hence it is the odd one out.