If goodwill already exists in the books of the firm at the time of admission of a partner then it will be dealt in the following manner.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Old Partner's Capital A/c - Dr; Goodwill A/c - Cr.
Goodwill appearing in the books will be written-off by debiting old partners' capital accounts in their old profit sharing ratio. It reduces the capital balance of old partners and also eliminate goodwill.