Why might a new partner be required to contribute premium of goodwill?

To compensate the existing partner for the loss of their share in super profits

The correct answer is option 2- To compensate the existing partner for the loss of their share in super profits.

A new partner may be required to contribute premium of goodwill primarily to compensate the existing partners for the loss of their share in super profits. Super profits refer to profits earned by the partnership firm that exceed the normal rate of return on its capital. By admitting a new partner, the existing partners may have to sacrifice a portion of these super profits to accommodate the new partner's share in the firm. To ensure fairness, the new partner is typically required to contribute an additional amount known as premium of goodwill. This contribution compensates the existing partners for the loss of their share in these extra profits. The amount of premium or goodwill is determined through negotiation or by using specific methods, such as the average profits method or capitalization of super profits method.