The correct answer is Option (2) → Deceased Partner's Share in Firm's Goodwill
A partner who dies in the middle of the year is entitled to what he earned from the date of the last balance sheet to the date of his death, the intervening period. So interest on his capital, interest on his drawings and his share of profit or loss are all worked out for that part of the year.
Goodwill is the one item not worked out for the intervening period. It is a value placed on the whole firm on the date of death, and the deceased partner gets his share of that value; it does not depend on how much of the year had passed.
NCERT (2026-27 edition):
Death of a Partner – “As stated earlier, the accounting treatment in the event of death of a partner is similar to that in case of retirement of a partner, and that in case of death of a partner his claim is transferred to his executors and settled in the same manner as that of the retired partner. However, there is one major difference that, while the retirement normally takes place at the end of an accounting period, the death of a partner may occur any time. Hence, in case of a partner, his claim shall also include his share of profit or loss, interest on capital, interest on drawings (if any) from the date of the last Balance Sheet to the date of his death of these, the main problem relates to the calculation of profit for the intervening period (i.e., the period from date of the last balance sheet and the date of the partner’s death.” NCERT (2026-27 edition):
Treatment of Goodwill – “The retiring or deceased partner is entitled to his share of goodwill at the time of retirement/death because the goodwill has been earned by the firm with the efforts of all the existing partners.” |
