Why is a retiring or deceased partner entitled to a share of goodwill at the time of death of a partner?
Answer & explanation
Correct answer: option 3
The correct answer is option 3- Because the continuing partners acquire the deceased partner’s share of profit and must compensate him in the gaining ratio.
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. Hence, at the time of retirement/death of a partner, goodwill is valued as per agreement among the partners the retiring/ deceased partner compensated for his share of goodwill by the continuing partners (who have gained due to acquisition of share of profit from the retiring/ deceased partner) in their gaining ratio.