Goodwill in partnership refers to the benefit and advantage of the good name, reputation, and connection of a business. It is the attractive force that brings in customers and distinguishes an old established business from a new business at its first start. In accounting, goodwill is an intangible asset that is associated with the purchase of one company by another. It represents the value that can give the acquiring company a competitive advantage. Specifically, goodwill is the portion of the purchase price that is higher than the sum of the net fair value of all of the assets purchased in the acquisition and the liabilities assumed in the process.

In partnership, goodwill arises when there is a change in the profit-sharing ratio amongst the existing partners, at the time of admission, retirement, or death of a partner, when the partnership firm is sold out, when the firms amalgamate (merge), or when the firm is converted into a company. There are two ways to show goodwill in the balance sheet: one is to show them in the balance sheet (open a goodwill account), and the other one is to not show them in the balance sheet (do not open a goodwill account) .

When a partner leaves a partnership, they may be entitled to a share of the value of goodwill. However, it is not easy to estimate the true value of goodwill, as it includes a firms brand name, reputation, contacts, people, and location, which are not easily quantifiable. There are different methods to calculate the value of goodwill, such as the capitalization of average profits method, the super profits method, and the goodwill method.