A, B and C are partners in a firm. If C retires/dies, his capital account is credited with:
A, B and C are partners in a firm. If C retires/dies, his capital account is credited with:
Solution
When a partner retires or dies, their capital account must be settled by giving them credit for all their dues, including their share in the firm's goodwill.
Goodwill represents the value of the firm's reputation and earning capacity. Since C contributed to building this goodwill during their partnership, they are entitled to receive their proportionate share of it at the time of retirement or death.
The retiring/deceased partner's share of goodwill is calculated as:
C's Share of Goodwill = Total Goodwill of Firm × C's Profit-sharing Ratio
The journal entry would be:
Gaining Partners' Capital A/cs Dr.
To Retiring/Deceased Partner's Capital A/c
(Being C's share of goodwill credited by gaining partners in their gaining ratio)
Option 2 (Goodwill of the firm) is incorrect because C receives only their proportionate share, not the entire goodwill amount.
Options 3 and 4 are incorrect because C's account is credited with C's own share of goodwill, not with any other partner's share. In fact, the continuing partners (A and B) contribute to pay C's share in their gaining ratio.
Correct Option: 1
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