G, H and P are partners. On retirement of G, the goodwill already app…

The correct answer is Option (4) → By debiting all partners' capital accounts in their old profit sharing ratio.

Goodwill that already stands in the balance sheet was built up by all the partners while they shared profits in the old ratio. On G's retirement it is written off among all the partners, G included, in their old profit sharing ratio. G's share of the current value of goodwill is then adjusted separately through the gaining partners.

Why the other options are incorrect

• Option (1) By debiting all partners' capital accounts in their gaining ratio. — Incorrect. The gaining ratio belongs only to the continuing partners and is used for compensating the retiring partner, not for writing off existing goodwill.

• Option (2) By debiting remaining partners' capital accounts in their new profit sharing ratio. — Incorrect. This leaves out G, who shared in the goodwill when it was built up, and uses the new ratio, which applies only to future profits.

• Option (3) By debiting retiring partners' capital accounts from his share of goodwill — Incorrect. Writing off the whole goodwill against G alone would charge him with the other partners' share of it too.