Target Exam

CUET

Subject

-- Accountancy Part A

Chapter

Admission of a Partner

Question:

State the Journal entry when sacrificing partner Radha withdraws her Share of goodwill in cash?

Options:

Radha's Capital A/c Dr.
     To Cash A/c

Bank A/c Dr
   To Radha's Capital A/c

Radha's Capital A/c Dr
    To Goodwill A/c

Premium for Goodwill A/c Dr
    To Radha's capital A/c

Correct Answer:

Radha's Capital A/c Dr.
     To Cash A/c

Explanation:

The correct answer is Option (1)-
Radha's Capital A/c Dr.

            To Cash A/c

When goodwill is withdrawn by the partners then their capital accounts are debited and bank/cash account is credited as bank/cash balance is reduced by that amount and their capital balance also. So, journal entry will be-
Partner's capital A/c
    To Bank/Cash A/c

The amount of premium brought in by the new partner is shared by the existing partners in their ratio of sacrifice. If the amount is paid through 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) Goodwill A/c
   To Sacrificing Partners Capital A/c (Individually)
(Goodwill distributed among the existing partners’ in their sacrificing ratio).

If the partners decide to withdraw their amounts, (in full or in part) the following additional entry will be passed:
(iii) Existing Partner’s Capital A/c (Individually) Dr.
    To Bank A/c
(The amount of goodwill withdrawn by the existing partners)