Financial Accounting · Death of Partner

Goodwill and Revaluation on Death of a Partner

Updated 10 October 2026 · Fact-checked

When a partner dies, the firm values its goodwill and revalues assets and liabilities to give the deceased's estate a fair share. Goodwill is either shown in the books and written off, or adjusted by the continuing partners in their gaining ratio. Revaluation profit or loss goes to all old partners in the old ratio.

Understand Goodwill and Revaluation on Death of a Partner

A partner's death ends the old partnership, and the firm continues with the surviving partners. The deceased's estate must be paid what the partner was truly worth on the date of death. That worth includes a share of goodwill and of any hidden gains or losses in assets and liabilities.

Goodwill is the extra value a firm earns because of its name, location and customers. It is not normally in the books. So on death it is valued using the method given in the partnership deed or in the question, such as an average of past profits, super profit or a stated value for the whole firm.

The deceased partner's share of goodwill is credited to his capital account. Someone must pay for it. The surviving partners who gain from the larger profit share are the ones who bear it. Their gaining ratio is the new ratio minus the old ratio, partner by partner.

There are two usual treatments. In the first, goodwill is raised in the books at full value, credited to all old partners in the old ratio, and then written off to the continuing partners in the new ratio. In the second, no goodwill account is kept. The gaining partners' capital accounts are debited and the deceased's capital account is credited in the gaining ratio.

The Revaluation Account deals with assets and liabilities. Their book values are changed to current values at the date of death. Any profit or loss on revaluation belongs to the old partners, including the deceased, in the old profit sharing ratio. This is because the gain or loss arose while they were all partners.

Key rules to remember

Gaining ratio: Gaining ratio = New ratio − Old ratio (for each continuing partner); Use only for continuing partners. The gains should add up to the deceased partner's old share.
Deceased partner's share of goodwill: Share of goodwill = Total goodwill × Deceased partner's old share; If goodwill is given as a value for the whole firm, use it directly. If given for a part, scale it up.
Goodwill by average profit: Goodwill = Average profit × Number of years' purchase; Adjust profits for abnormal items before averaging, unless the question says otherwise.
Goodwill by super profit: Super profit = Average profit − Normal profit; Goodwill = Super profit × Years' purchase; Normal profit = Capital employed × Normal rate of return ÷ 100.
Goodwill adjustment without a goodwill account: Dr Gaining partners' capital A/cs (in gaining ratio); Cr Deceased partner's capital A/c (share of goodwill); Used when the firm does not want goodwill to remain in the books.
Goodwill raised in the books: Dr Goodwill A/c; Cr All old partners' capital A/cs (old ratio). Then Dr Continuing partners' capital A/cs (new ratio); Cr Goodwill A/c; Use when the question asks you to show goodwill and write it off.
Revaluation result: Profit or loss on revaluation is shared by all old partners in the old ratio; Increase in asset or decrease in liability is a gain. Decrease in asset or increase in liability is a loss.
Existing goodwill in the books: Write off the existing goodwill to all old partners' capital accounts in the old ratio before the new goodwill entry; Debit capital accounts in the old ratio and credit Goodwill A/c.

How to solve Goodwill and Revaluation on Death of a Partner questions

Follow the same order in every question. This keeps entries and marks safe even when the data is long.

1Note the date of death, the old ratio and the new ratio. Calculate the gaining ratio for each continuing partner and check that the total equals the deceased's old share.
2If goodwill already appears in the books, write it off first to all old partners' capital accounts in the old ratio.
3Value goodwill using the stated method. Find the deceased partner's share of it.
4Decide the treatment from the wording. If goodwill is to be shown in the books, raise it and write it off. If no goodwill account is to remain, adjust through capital accounts in the gaining ratio.
5Prepare the Revaluation Account with each asset and liability change. Transfer the profit or loss to the old partners in the old ratio.
6Record the other items in the partners' capital accounts: opening balances, reserves, goodwill, revaluation result, drawings, interest and profit up to death.
7Balance the deceased partner's capital account to get the amount due to the executor. Then prepare the balance sheet if asked, showing the amount as a liability.

Quickest way: Gaining ratio adjustment in one capital table

When to use it: Use when the question says goodwill is not to appear in the books and only the final partners' capital balances are needed.

Work out the gaining ratio and the deceased's share of goodwill.
Open a capital table with one column per partner, with the deceased at the left.
Enter opening capital, reserves in the old ratio and the revaluation result in the old ratio.
Add the deceased's goodwill share as a credit. Split the same amount as a debit among the gainers in the gaining ratio.
Add the other items and total each column. The deceased's total is the amount payable to the executor.
Write the journal entries only if the question asks for them.

Common mistakes in Goodwill and Revaluation on Death of a Partner

Sharing the deceased partner's goodwill in the new ratio instead of the gaining ratio.
Students confuse the ratio used for raising goodwill with the ratio used for compensating the estate.
Fix: When no goodwill account is kept, debit the gainers in the gaining ratio. Use the new ratio only when writing off a raised goodwill account.
Crediting revaluation profit or loss to the continuing partners only.
Students think the deceased has left the firm and no longer shares it.
Fix: The revaluation relates to the period up to death. Share it among all old partners, including the deceased, in the old ratio.
Ignoring existing goodwill in the books.
The balance sheet shows goodwill as just another asset.
Fix: Write it off to all old partners in the old ratio first, then record the new goodwill treatment.
Computing gaining ratio as new share divided by old share.
Students mix it up with other ratio ideas.
Fix: Subtract. Gaining ratio is new share minus old share, partner by partner. Convert to a common denominator first.
Raising whole firm goodwill but crediting only the deceased partner.
Students mix the two methods.
Fix: If the goodwill account is raised, credit all old partners in the old ratio. If you credit only the deceased, use the gaining ratio adjustment method.
Treating an increase in a liability as a gain on revaluation.
Increase is mistaken for a favourable movement.
Fix: An increase in a liability or a decrease in an asset is a loss. A decrease in a liability or an increase in an asset is a gain.

Worked examples

Example 1

Ravi, Sanjay and Tarun share profits in the ratio 5:3:2. Tarun died on 31 March 2027. The remaining partners decided to share future profits equally. Goodwill of the firm was valued at ₹1,20,000. Goodwill is not to be shown in the books. Show the adjustment entry.

Show the solution

Old ratio: Ravi 5/10, Sanjay 3/10, Tarun 2/10. New ratio: Ravi 1/2 = 5/10, Sanjay 1/2 = 5/10.
Gaining ratio = New − Old. Ravi: 5/10 − 5/10 = 0. Sanjay: 5/10 − 3/10 = 2/10. Total gain 2/10, equal to Tarun's old share.
Tarun's share of goodwill = ₹1,20,000 × 2/10 = ₹24,000.
Only Sanjay gains, so Sanjay bears the whole ₹24,000.
Entry: Sanjay's Capital A/c Dr ₹24,000; To Tarun's Capital A/c ₹24,000.

Answer: Debit Sanjay's Capital A/c and credit Tarun's Capital A/c with ₹24,000. Ravi is not affected.

Example 2

Anil, Bimal and Chetan share profits in the ratio 3:2:1. Chetan died on 30 September 2026. Capital balances: Anil ₹3,00,000, Bimal ₹2,00,000, Chetan ₹1,00,000. Goodwill is valued at ₹1,80,000. On revaluation, stock is to be written down by ₹12,000 and land is to be increased by ₹30,000. Anil and Bimal will share future profits equally. Goodwill is not to appear in the books. Find the amount due to Chetan's executor, ignoring profit up to death, drawings and interest.

Show the solution

Revaluation: gain on land ₹30,000 less loss on stock ₹12,000 = net profit ₹18,000.
Share in old ratio 3:2:1. Anil ₹9,000, Bimal ₹6,000, Chetan ₹3,000.
Old shares: Anil 3/6, Bimal 2/6, Chetan 1/6. New shares: 1/2 each = 3/6 each.
Gaining ratio: Anil 3/6 − 3/6 = 0. Bimal 3/6 − 2/6 = 1/6. Total 1/6, equal to Chetan's old share.
Chetan's goodwill share = ₹1,80,000 × 1/6 = ₹30,000, borne wholly by Bimal.
Chetan's capital account: opening ₹1,00,000 + revaluation profit ₹3,000 + goodwill ₹30,000 = ₹1,33,000.
Check the other capitals: Anil ₹3,00,000 + ₹9,000 = ₹3,09,000. Bimal ₹2,00,000 + ₹6,000 − ₹30,000 = ₹1,76,000.

Answer: Amount due to Chetan's executor is ₹1,33,000. Anil's capital is ₹3,09,000 and Bimal's is ₹1,76,000.

Exam tips

Write the gaining ratio calculation as a separate working note. Examiners give marks for it even if a later figure is wrong.
Read the wording on goodwill carefully: 'not to be shown in the books' means gaining ratio adjustment, while 'to be raised and written off' means the goodwill account method.
Always check that the total of the gains equals the deceased partner's old share before moving on.
Show the Revaluation Account in proper format with losses on the debit side and gains on the credit side, and show the transfer to the partners.
Where the question gives goodwill as a number of years' purchase, show the average profit working in a clear step before you find the deceased's share.

Practice questions from Death of Partner

Goodwill and Revaluation on Death of a Partner in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Goodwill and Revaluation on Death of a Partner: frequently asked questions

Who pays for the deceased partner's goodwill?

The surviving partners who gain additional profit share pay for it, in their gaining ratio. If the goodwill account is raised, it is credited to all old partners and then written off to the continuing partners in the new ratio.

In which ratio is revaluation profit shared on death of a partner?

It is shared among all old partners, including the deceased, in the old profit sharing ratio. This is because the gain or loss belongs to the period when all of them were partners.

What if the continuing partners continue in the old ratio?

When the new ratio is the surviving partners' old ratio to each other (for example 3:2), the deceased's share is taken up in that ratio. So the gaining ratio equals the surviving partners' old ratio to each other, and each partner bears goodwill in that proportion.

What if goodwill already appears in the balance sheet?

Write off the existing goodwill to all old partners' capital accounts in the old ratio first. Then value goodwill afresh and apply the required treatment.