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