When a new partner brings his share of goodwill in cash, the amount is credited to-

Premium for goodwill account

The correct answer is Option (1) → Premium for goodwill account

When the new Partner brings goodwill in cash. The amount of premium brought in by the new partner is shared by the existing partners in their ratio of sacrifice. If this amount is paid to the old partners directly (privately) by the new partner, no entry is passed in the books of the firm. But, when the amount is paid through the firm, which is generally the case, the following journal entries are passed:

1. Bank A/c  Dr

       To Premium for Goodwill A/c

(Amount brought by new partner as premium)

2.  Goodwill A/c Dr

      To Sacrificing Partners Capital A/c (Individually)

(Goodwill distributed among the existing partners’ in their sacrificing ratio).