Partnership

Retirement/Death

Easy

common

A, B and C are partners in a firm. On retirement/death of C, his capital account will be credited with:

His share of goodwill

Share of goodwill of A

Share of goodwill of B

Goodwill of the firm

✅ Correct Option: 1

When a partner retires or dies, they are entitled to receive their share of the firm's goodwill along with their capital and accumulated profits.

Goodwill represents the value of the firm's reputation and future earning capacity. At the time of retirement or death, the retiring/deceased partner's share in this goodwill needs to be settled.

The accounting treatment involves crediting the retiring partner's capital account with their proportionate share of goodwill. This compensates them (or their legal heirs) for the intangible asset they helped build during their association with the firm.

For example, if the total goodwill of the firm is ₹3,00,000 and C's profit-sharing ratio is 1/3, then C's capital account will be credited with ₹1,00,000 (which is C's share of goodwill).

C's capital account will be credited with his own share of goodwill, not the shares of A or B, and certainly not the entire firm's goodwill. The continuing partners (A and B) typically bear this amount in their gaining ratio, as they benefit from C's departure by acquiring his share in future profits.

Journal Entry:

Continuing Partners' Capital A/c (in gaining ratio) Dr.

To Retiring/Deceased Partner's Capital A/c

This ensures fair settlement of the outgoing partner's dues while maintaining proper accounting of the firm's intangible assets.

2025: 2 June Shift 2

Naveen, Suresh and Tarun are partners sharing profits and losses in the ratio of 5:3:2. Tarun retires from the firm and his share was taken over by Naveen and suresh in the ratio 2:1. In such a case, the new share of profit will be .

2026: 11 May Shift 2

Match the LIST-I with LIST-II

LIST-I		LIST-II
A. Preparation of Profit & Loss Suspense A/c	I.	Admission of a partner
B. When firm requires additional capital or managerial help or both for the expansion of its business	II.	Change in the existing agreement
C. This happens on account of a change in the existing partners' role in the firm.	III.	Retirement of an existing partner
D. It means withdrawal by a partner from the business of the firm which may be due to his bad health, old age or change in business interests.	IV.	Death of a partner

Choose the correct answer from the options given below:

2026: 11 May Shift 2

On the death of a partner, his share of loss in the firm from the last balance sheet till the date of his death is transferred to:

2026: 21 May Shift 1

Aditya, Biral and Mukul are partners in a firm. On the date of retirement of Mukul, Rs. 6,00,000 becomes due to him. Aditya and Biral promised to pay him the amount due. Payment is made in three yearly installments of Rs. 2,00,000 each including interest @ 12% p.a. on the outstanding balance during the first three years and the balance including interest in the fourth year. Opening balance of Mukul's loan account in the beginning of second year, third year, and fourth year would be:

2026: 6 June Shift 1

From the following options, which one should be deducted in ascertaining the amount due to retiring or deceased partner?

2026: 11 May Shift 2

MOTI, CHOTI and GUDDU are partners in a firm sharing profits according to their capitals. Their capitals as on April 1, 2025 were Rs. 1,80,000; Rs. 1,40,000; and Rs. 1,40,000 respectively. MOTI retired on above date. Goodwill of the firm is valued at Rs. 92,000 and the retiring partner's share is adjusted through the capital accounts of remaining partners. Correct Journal entry for recording effect of goodwill in the books of the firm will be:

A, B and C are partners in a firm. On retirement/death of C, his capital account will be credited with:

Solution

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