Question

Assertion (A): The retiring partner or the executors of the deceased partner are entitled to their share of goodwill at the time of retirement or death.

Reason (R): Goodwill is earned by the firm with the efforts of all the existing partners (including the retiring or deceased partner).

Choose the correct option from the following:

Options

• Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).

• Assertion (A) is correct, but Reason (R) is incorrect.

• Assertion (A) is incorrect, but Reason (R) is correct.

Answer 1

Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).

Explanation:

Because a partner who leaves the firm (due to retirement or death) has a legal right to receive their share of the firm's goodwill, which represents the reputation and future profit-earning capacity of the business. The Reason (R) is also correct and serves as the perfect explanation for the assertion: goodwill is a result of the hard work and combined efforts of all partners over a period of time. Therefore, since the retiring or deceased partner contributed to building that reputation, they are entitled to monetary compensation for their share of it from the remaining partners.