Q.On the retirement of a partner, the amount payable to him or her towards the firm's goodwill is adjusted through the continuing partners' capital accounts in which ratio?

Only the partners who actually gain a bigger share of profits after the retirement should bear the cost of compensating the outgoing partner for goodwill — this is exactly what the gaining ratio measures. …

Why option (c) is correct. The retiring or deceased partner's share of goodwill is compensation for the enhanced future share the continuing partners will now enjoy. Since it is specifically the GAIN in each continuing partner's share that goodwill is compensating for, the fairest and standard basis for splitting this cost among them is the gaining ratio (New Share − Old Share).

Why the other options are wrong.

• (a) Old ratio — this was the ratio including the outgoing partner; it does not represent how the benefit is now shared among only the continuing partners going forward, so it is not the correct base for this specific adjustment. …

This is one of the most frequently confused points in the chapter — many students default to the OLD ratio out of habit (since that is the ratio used for revaluation and reserves), without recognising that goodwill …