i. Definition and Recognition of Goodwill:

Goodwill:
Goodwill is the amount by which the value of a business exceeds the value of its net assets. It represents the future economic benefits arising from assets that are not individually identifiable and cannot be separately recognized, such as reputation, customer loyalty, or strategic location.

Recognition in Partnership Accounts:
Goodwill is recognized in partnership accounts during significant changes in the partnership structure, such as admission of a new partner, retirement or death of an existing partner, or a revaluation of the partnership business. It is usually calculated based on the excess payment made by a new or continuing partner over their share of the net assets.

ii. Circumstances Leading to the Creation of Goodwill in a Partnership:

1. Admission of a New Partner:
   When a new partner is admitted into the partnership, they may be required to pay an amount above the value of their share in the net assets to compensate existing partners for their share in the business’s goodwill.
2. Retirement or Death of a Partner:
   Goodwill may be created to compensate the retiring partner or the heirs of a deceased partner for their share of the business value above the book value of net assets.
3. Amalgamation of Partnerships:
   When two or more partnerships combine to form a new partnership, goodwill is created to account for the combined value of the businesses that is not reflected in the net assets.