Question

On retirement/death of a partner, the remaining partners who have gained due to change in profit sharing ratio should compensate the:

• A. No partner
• B. Retiring partner only
• C. Remaining partners only (Who have sacrifice.)
• D. Remaining partners (who have sacrificed) as well as retiring partner.

Hint:

The retiring partner is compensated for the loss of their share, paid by the partners who gain that share.

Answer 1

The Correct Option is B

Principle of Gaining Partners Compensating Retiring Partner:
When a partner retires or dies, the remaining partners often gain a larger share of the profits. To ensure fairness, those gaining partners compensate the retiring or deceased partner for their share of the firm’s future profits.
The Logic:
The retiring/deceased partner is giving up their share of future profits.
The gaining partners are receiving that share.
To balance this transfer, the gaining partners pay for the advantage they're acquiring.

The Compensation Target:
This compensation is exclusively directed to the retiring partner (or their estate in case of death). The remaining partners who may have sacrificed are not compensated in this transaction; their sacrifice is implicitly recognized in the new profit-sharing arrangement.