Why a retiring/deceased partner is entitled to a share of goodwill of the firm.
A retiring or deceased partner is entitled to his share of goodwill at the time of retirement/death because the goodwill has been earned by the firm with the efforts of all the existing partners.
Since all partners have contributed to building the goodwill of the firm, the retiring or deceased partner deserves to be compensated for his share. The continuing partners gain from the acquisition of the share of profit from the retiring/deceased partner.
Therefore, the retiring/deceased partner is compensated for his share of goodwill by the continuing partners in their gaining ratio. This ensures fair treatment as the continuing partners benefit from the reputation and business relationships built collectively by all partners.
Explanation
The textbook clearly states that goodwill is earned through the collective efforts of all existing partners. When a partner retires or dies, they should receive compensation for their contribution to the firm's goodwill. The continuing partners, who acquire the retiring/deceased partner's share of profit, must compensate them in the gaining ratio.