Goodwill brought by new partner is distributed among the existing partners in their __________.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) - Sacrificing Ratio.
When the new Partner brings goodwill in cash. 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.
The following journal entries are passed:
(i) Bank A/c
To Premium for Goodwill A/c
(Amount brought by new partner as premium)
(ii) Premium for Goodwill A/c
To Sacrificing Partners Capital A/c (Individually)
(Goodwill distributed among the existing partners’ in their sacrificing ratio).