Question

At the time of retirement of a Partner the remaining gaining partners should compensate the______

• A. Remaining Partners only
• B. Retiring Partners only
• C. Retiring Partners as well as remaining partners who have sacrificed
• D. Sacrificing partners only

Answer 1

The Correct Option is B

In partnership accounting, when a partner retires, the continuing or gaining partners acquire the retiring partner's share in the firm. This results in a gain in profit-sharing ratio for the continuing partners.

According to the principle of gain vs. sacrifice, the gaining partners should compensate the retiring partner for their share of goodwill and other assets. This ensures a fair and ethical distribution of the partnership’s intangible value.

So, the retiring partner, who is giving up his/her share in the firm, must be compensated by the gaining partners—not by the remaining or sacrificing partners.

Journal Entry (for goodwill):

Gaining Partner’s Capital A/C Dr.
To Retiring Partner’s Capital A/C
(Being compensation for goodwill transferred by gaining partners to retiring partner)

Hence, the correct answer is: (2) Retiring Partners only