A, B and C are partners in a firm. On retirement/death of C, his capital account will be credited with:

His share of goodwill

The correct answer is Option (1) → His share of goodwill

When a partner (C) retires or dies, the firm is reconstituted. The retiring/deceased partner is entitled to their share of the firm's goodwill because the goodwill was built up during the period when they were a partner. This share of goodwill is compensated by the remaining/gaining partners (A and B) by debiting their capital accounts. The retiring partner's capital account is credited with this amount.