Need for valuation of goodwill :

Whenever there is any change in the existing relationship of the partners, some partners may have to sacrifice their future profits and some other partners may gain. Those who are sacrificing future profit should be compensated by others who are gaining. As a result, the need for the valuation of goodwill in a firm may arise in the following circumstances:

–Where the profit sharing ratio amongst the partners is changed.

–When a new partner is admitted.

 –When a partner retires or dies.

–When the business is sold, and

–When a firm is amalgamated with another firm.