Explain the treatment of goodwill at the time of retirement or in the event of the death of a partner?

— Kishore V, SME and ACW at Edumarz

The firm’s goodwill is adjusted among the partners in their gaining ratio with the share of goodwill of the retiring or deceased partner at the time of retirement or death of a partner. Because a goodwill account is not formed when a partner retires or dies, there are only two instances in which the goodwill may be treated: first, when the goodwill account is already in the books or appears in the books, and second, when the amount of goodwill does not show in the books.
In the two scenarios mentioned above, goodwill will be treated as follows:

The first situation is when the firm’s goodwill is already recorded in its books.
1st step Expired Goodwill should be written off
When a goodwill account already exists in the firm’s book or is first stated in the book, it will be written off and dispersed among all of the firm’s partners, including the retiring or deceased partners, in their previous profit-sharing ratio. In such situation, the journal entry will look like this:

Step 2: Adjusting Goodwill Using Capital Accounts of Partners
After writing off the previous goodwill, the amount of goodwill must now be adjusted through the capital account of the retiring or deceased partner with the portion of the retiring or deceased partner’s goodwill. The following entry in the journal is accepted.

The second scenario is when the firm’s books show no goodwill.
The amount of goodwill will be adjusted through the partner’s capital account with the portion of the retiring or deceased partner’s goodwill in the second instance, where no goodwill shows in the firm’s books. The following entry in the journal is accepted.