If a new partner does not bring his share of goodwill in cash, the following treatment shall be made:
Answer & explanation
Correct answer: option 2
The correct answer is option 2- Crediting old partners capital A/c in sacrificing ratio and debiting new partner current A/c.
If a new partner does not bring his share of goodwill in cash, the treatment shall be made by Crediting old partners capital A/c in sacrificing ratio and debiting new partner current A/c.
When goodwill does not exist in the books, sacrificing partners are credited with their share of goodwill and new partner is debited by the amount of goodwill not brought by him. The journal entry in this case is-
Incoming (New) Partners Current A/c Dr.
To Sacrificing Partners Capital A/c (individually)
(Account of goodwill not brought in by new partner)
Sometimes the new partner brings part of premium for goodwill in cash. In such a situation, new partners current account will be debited by the amount not brought by new partner.