Retiring/Deceased partner is compensated for his share of goodwill by the continuing partners in their _______.

Gaining ratio

The correct answer is Option (3) - Gaining ratio

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 continuing partners (who have gained due to the acquisition of a share of profit from the retiring/ deceased partner) in their gaining ratio.