When a new partner brings premium for goodwill in cash in the partnership firm to compensate old partners for their sacrifice, then, what is done with this premium?

Either option 1 or 2

The correct answer is option 3- Either option 1 or 2.

Both can be done according to partners choice or agreement.

The amount of premium brought in by the new partner is shared by the existing partners in their ratio of sacrifice.

1) 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.

2) But, when the amount is paid through the firm, which is generally the case, the following journal entries are passed:
(i) Bank A/c
     To Premium for Goodwill A/c
(Amount brought by new partner as premium)
(ii) Goodwill A/c
    To Sacrificing Partners Capital A/c (Individually)
(Goodwill distributed among the existing partners’ in their sacrificing ratio).

3) If the partners decide that the amount of premium for goodwill credited to their capital accounts should be retained in business, an additional entry is not passed. If, however, they decide to withdraw their amounts, (in full or in part) the following additional entry will be passed:
Existing Partner’s Capital A/c (Individually) Dr.
        To Bank A/c
(The amount of goodwill withdrawn by the existing partners).