Read the text and answer the question :

Suresh and Dinesh were partners in a fast-food corner sharing profits and losses in ratio 3:2. They sold fast food items across the counter and did home delivery too. Their initial fixed capital contribution was ₹1,20,000 and ₹80,000 respectively. At the end of first year their profit was ₹1,20,000 before allowing the remuneration of ₹3,000 per quarter to Suresh and ₹2,000 per half year to Dinesh. Such a promising performance for first year was encouraging, therefore, they decided to expand the area of operations. For this purpose, they needed a delivery van, a few Scooties and an additional person to support. Six months into the accounting year, they decided to admit Rajesh as a new partner and offered him 20% as a share of profits along with monthly remuneration of ₹2,500. Rajesh was asked to introduce ₹1,30,000 for capital and ₹70,000 for premium for goodwill. Besides this Rajesh was required to provide ₹1,00,000 as loan for two years.  Rajesh readily accepted the offer. The terms of the offer were duly executed and he was admitted as a partner.

What will be the entry for the distribution of Rajesh's share of goodwill?

Premium for Goodwill A/c Dr.     ₹70,000
    To Suresh Capital A/c                  ₹42,000
    To Dinesh Capital A/c                  ₹28,000

The correct answer is option 1-
Premium for Goodwill A/c Dr.     ₹70,000
    To Suresh Capital A/c                  ₹42,000
    To Dinesh Capital A/c                  ₹28,000

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

As, old ratio becomes sacrificing ratio means 3:2. So, goodwill will be distributed in this ratio to old partners. So, JOURNAL ENTRY WILL BE-

Premium for Goodwill A/c Dr.     ₹70,000
    To Suresh Capital A/c                  ₹42,000
    To Dinesh Capital A/c                  ₹28,000