X and Y are partners in a firm sharing profit and loss in the ratio of 2:1. Z is admitted for 1/4 share in profits but could not bring any amount for goodwill. The account that will be debited for this entry will be:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Z's Current Account
A new partner pays the old partners for the share of future profits they give up; this payment is his premium for goodwill. If he cannot bring it in cash, he still owes it, so the amount is debited to the new partner's current account and credited to the sacrificing partners' capital accounts. Using the current account keeps his capital at the agreed figure while showing the amount he owes.
Why the other options are incorrect
Option (1) Z's Capital Account — Incorrect. Debiting his capital would cut the capital he has brought in below the agreed amount; the goodwill he owes is shown separately in his current account.
Option (2) X's and Y's Capital Account — Incorrect. X and Y are the sacrificing partners who receive the goodwill, so their capital accounts are credited, not debited.
Option (3) Bank Account — Incorrect. Bank is debited only when goodwill is brought in cash. Here Z brings no amount for goodwill, so no cash comes in.
NCERT (2026-27 edition): |