Who receives the credit in goodwill settlement?

Correct answer: Retiring partner or deceased partner's executor

Goodwill represents the value of the firm’s reputation, customer loyalty, and expected future earning capacity. A retiring partner or the legal representative of a deceased partner is entitled to the partner’s share of that goodwill. In the settlement entry, the outgoing partner’s capital account is credited because the firm recognises an amount payable to that partner or executor. The gaining partners’ capital or current accounts are debited because they receive the benefit of the outgoing partner’s share. A customer, bank manager, or seller has no ownership claim merely because the settlement is made. Hence option A correctly identifies the account receiving the credit.