There are two statements marked as Assertion (A) and Reason (R). Mark your answer as per the options given below.
Assertion: In certain cases, the premium for goodwill paid by the incoming partner is not recorded in the books of accounts.
Reason: Sometimes, the incoming partner pays his share of goodwill privately to the sacrificing partners, outside the business.
Answer & explanation
Correct answer: option 1
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.