A, B and C are partners sharing profits in the ratio of 5 : 3 : 2. On…

The correct answer is Option (1) → By debiting all partners' capital accounts in their old profit sharing ratio

Goodwill already in the books was built up while all the partners were sharing in the old ratio 5 : 3 : 2. On C’s retirement it is written off by debiting all partners’ capital accounts (A, B and C) in their old profit sharing ratio; C’s share of the firm’s goodwill is then dealt with separately.

A = ₹24,000 × 5/10 = ₹12,000; B = ₹24,000 × 3/10 = ₹7,200; C = ₹24,000 × 2/10 = ₹4,800

Option (2) By debiting remaining partners' capital accounts in their new profit sharing ratio — Incorrect. The old goodwill belongs to the period of the old ratio, which includes C.

Option (3) By debiting retiring partner's capital accounts for his share of goodwill — Incorrect. Only C’s part would be written off, leaving the rest in the books.

Option (4) By crediting all partners' capital accounts in their old profit sharing ratio — Incorrect. Writing off an asset reduces the capitals, so they are debited.