Practicing Success
At the time of admission of a new partner in the firm, the new partner compensate the old partners for their loss of share in the super-profits of the firm for which he brings in an additional amount which is known as:- |
Premium for goodwill Capital share Share in super profit Share in average profit |
Premium for goodwill |
The correct answer is option 1- Premium for goodwill. The incoming partner who acquires his share in the profits of the firm from the existing partners brings in additional amount to compensate them for loss of their share in super profits. It is termed as his share of goodwill (also called premium for goodwill).. When this amount of premium is paid privately by the incoming partner to the old partner's, no entry is recorded in the books of accounts. |