Which account will be credited when a new partner brings cash for goodwill on his admission in the partnership firm?

Premium for goodwill A/c

The correct answer is option 2- Premium for goodwill A/c.

Premium for goodwill account will be credited when a new partner brings cash for goodwill on his admission in the partnership firm.

The amount of premium brought in by the new partner is shared by the existing partners in their ratio of sacrifice. If this amount is paid to the old partners directly (privately) by the new partner, no entry is passed in the books of the firm. But, when the amount is paid through the firm, which is generally the case, the following journal entries are passed:

(i) Bank A/c Dr.
      To Premium for Goodwill A/c
(Amount brought by new partner as premium)

(ii) Goodwill A/c Dr.
      To Sacrificing Partners Capital A/c (Individually)
(Goodwill distributed among the existing partners’ in their sacrificing ratio).

Alternatively, it is credited to the new partner’s capital account and then adjusted in favour of the existing partners in their sacrificing ratio. In that case the journal entries will be as follows:

(i) Bank A/c Dr.
      To New Partner’s Capital A/c
(Amount brought by new partner for his share of goodwill).

(ii) New Partner’s Capital A/c Dr.
         To Sacrificing Partner’s Capital A/c’s (Individually)
(Goodwill brought by new partners distributed among the existing partners in their sacrificing ratio)