Accountancy Part AReconstitution of Partnership Firm: Retirement and Death

In case of retirement of a partner from a firm, any lump sum amount p…

In case of retirement of a partner from a firm, any lump sum amount paid to a retiring partner in excess of what is due to him, shall be treated as his share of _____.

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Goodwill

NCERT (2026-27 edition):
Treatment of 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).”