Which account will be credited when a new partner brings cash for goodwill on his admission in the partnership firm? |
Cash A/c Premium for goodwill A/c Current account of existing partners Capital account of existing partners |
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. (ii) Goodwill A/c Dr. 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. (ii) New Partner’s Capital A/c Dr. |