At the time of a partner’s retirement from the partnership firm, who should be compensated by the remaining partners?

Both options 1 & 3

The correct answer is option 4- Both options 1 & 3.

At the time of retirement of a partner the remaining partners should compensate the retiring partners as well as remaining partners who have sacrificed.

It may happen that as a result of decision on the new profit sharing ratio among the remaining partners, a continuing partner may also sacrifice a part of his share in future profits. In such a situation his capital account will also be credited along with the retiring/deceased partner’s capital account in proportion to his sacrifice and the other continuing partners’ capital accounts will be debited based on their gain in the future profit ratio.