On retirement of a partner from the partnership firm, goodwill will be credited to the capital A/c of..........
Answer & explanation
Correct answer: option 1
The correct answer is option 1- Retiring partner.
On the retirement of a partner, the retiring partner is entitled to his/her share of goodwill of the firm. Therefore, the gaining partners compensate the retiring partner for the sacrifice made by him/her in the goodwill of the business. Hence, the goodwill amount is credited to the Capital Account of the retiring partner and debited to the remaining/gaining partners’ capital accounts in their gaining ratio.
NCERT: The journal entry is :
Gaining Partners Capital A/c Dr. (Individually)
To Retiring Partners Capital A/c
(Share in goodwill of retiring partner adjusted)