In case of retirement of a partner from a firm, any lump sum amount paid to a retiring partner in excess of what is due to him, shall be treated as his share of _____.

Goodwill

Correct answer: Option (1) → Goodwill

Concept: On retirement, any lump-sum amount paid to a retiring partner in excess of what is otherwise due to him is treated as his share of goodwill – per Reconstitution of a Partnership Firm – Retirement/Death of a Partner.

The retiring partner is entitled to his share of goodwill built up through the joint efforts of all partners. Where the firm pays him more than the balance standing to his credit (capital, reserves, revaluation, etc.), that excess is compensation for his share in the firm’s goodwill. Hence it is treated as his share of Goodwill.