Treatment of Goodwill on Retirement of Partner
The retiring partner must be compensated by the remaining partners by the amount of his share of goodwill by passing the following journal entry:
Remaining Partner's Capital A/c (In gaining ratio) Dr.
To Retiring Partner's Capital A/c
Existing goodwill, however, must be written off to all the partners’ capital accounts (including retiring partner) in the old profit-sharing ratio.
All partners’ capital (including retiring partner) A/c (in old ratio) Dr.
To Goodwill A/c
Hidden Goodwill on Retirement:
There can be case of hidden goodwill in case of retirement also, that can be calculated the same way as in case of admission of a partner and should be shared by all the partners including the retiring partner.