How is the goodwill recognized in the partnership upon withdrawal of a partner?

Goodwill in a partnership context reflects the intangible value that a business holds beyond its tangible assets and liabilities. When a partner withdraws from a partnership, any goodwill must be considered in determining the treatment of the withdrawing partner's capital account and their share of the business assets.

The correct option indicates that goodwill is tied to the payment made to the withdrawing partner. This means that the calculation of the payment for the partner's exit will account for their share of the total goodwill that has been built up in the partnership. Goodwill is not simply ignored or recorded as an expense, but rather it is a critical component of the financial settlement with the withdrawing partner. This ensures that the withdrawing partner receives compensation that reflects their rightful share of the business, including its goodwill.

Other options do not accurately depict how goodwill is treated in this specific situation. Allocating goodwill equally among partners does not appropriately reflect the individual interests or contributions of each partner, nor does treating it as an expense adequately capture the value it represents. Ignoring goodwill unless losses occur completely disregards the value already embedded in the partnership's operations and could lead to an unfair settlement for the withdrawing partner. Thus, tying it to the payment made ensures a fair financial process aligned with the partnership's overall financial health