A, B and C are partners in a firm. On retirement/death of C, his capi…

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

C helped build the firm’s goodwill and loses his claim to future profits when he leaves, so his capital account is credited with his own share of the goodwill, and A and B, who gain his share, are debited in their gaining ratio. Crediting him with the whole goodwill would pay him for the other partners’ shares too.