why is the value of goodwill determined when a firm can be reconstituted?

Dear Student
During reconstitution of a firm goodwill is calculated so as to compensate the sacrificing partners who had sacrificed their share of profit for the new/upcoming partner as the old partners are sacrificing their running, well established business share.
Hence value of goodwill is determined when a firm is reconstituted.
Regards

  • 4
This is because the loss suffered by partners is compensated by gaining partner by evaluating goodwill.
Amount of Compensation = Goodwill ? Gaining share
  • 9
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