On R's retirement, the amount payable to him after all adjustments, w…

On R's retirement, the amount payable to him after all adjustments, worked out to be ₹60,000 but the remaining partners P and Q agreed to pay him ₹75,000 in full settlement of his claim.

Identify the term which represents ₹15,000 extra, that is paid to R.

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → Hidden Goodwill

When a retiring partner is paid a lump sum more than the balance due to him after all adjustments, the excess is his share of goodwill, called hidden goodwill.

Amount paid = ₹75,000
Amount due = ₹60,000
Hidden goodwill = ₹75,000 − ₹60,000 = ₹15,000

Why the other options are incorrect

Option (1) Share in Profits — Incorrect. His share of profits is already included in the ₹60,000 worked out after all adjustments.
Option (3) Interest on his Capital — Incorrect. Interest on capital is also part of the adjusted balance of ₹60,000.
Option (4) Compensation for Past work — Incorrect. The extra is paid for his share in the firm’s future profits, which the remaining partners gain.

NCERT (2026-27 edition):
Hidden Goodwill – “If the firm has agreed to settle the retiring or deceased partner’s account by paying him a lump sum amount, then the amount paid to him in excess of what is due to him, based on the balance in his capital account after making necessary adjustments in respect of accumulated profits and losses and revaluation of assets and liabilities, etc., shall be treated as his share of goodwill (known as hidden goodwill).”

NCERT (2026-27 edition):
Hidden Goodwill – “… For example, P, Q and R are partners in a firm sharing profits in the ratio of 3:2:1. R retires, and the balance in his capital account after making necessary adjustments on account of reserves, revaluation of assets and liabilities workout to be Rs. 60,000, P and Q agreed to pay him Rs. 75,000 in full settlement of his claim. It implies that Rs. 15,000 is R’s share of goodwill of the firm.”