Accountancy Part AReconstitution of Partnership Firm: Retirement and Death

In case of retirement of a partner, gaining ratio is calculated for

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → Adjustment of retiring partner's share in goodwill

The gaining ratio is the ratio in which the continuing partners take over the retiring partner's share. Because they gain his share of future profits, they pay him for his share of goodwill in that ratio. Accumulated profits and losses and the revaluation profit or loss are shared by all partners in the old ratio, so they do not need the gaining ratio.

NCERT (2026-27 edition):
Treatment of Goodwill – “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 the continuing partners (who have gained due to acquisition of share of profit from the retiring/ deceased partner) in their gaining ratio.”