On retirement/death of a partner from the partnership firm, the retiring/deceased partner’s capital account will be credited with:
Answer & explanation
Correct answer: option 2
The correct answer is option 2- His/her share 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. 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.