What is the difference between the agreed capital and amount payable in full settlement at the time of retirement of the partner?

Hidden goodwill

The correct answer is option 3- 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).