The journal entries are as under-
Incoming partners' current A/c Dr.
To Sacrificing partners capital A/c.
What statement among the following is TRUE for the above entry?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → When the new partner does not bring goodwill in cash, partly or fully and goodwill does not exist in the book.
A new partner should compensate the old partners for the share of profit they give up. When he does not bring his share of goodwill in cash, that amount is charged to him instead: his current account is debited and the sacrificing partners’ capital accounts are credited in their sacrificing ratio. The entry in the question is this adjustment, made when there is no goodwill already in the books to be dealt with first.
Why the other options are incorrect
Option (1) When the new Partner brings goodwill in cash — Incorrect. Cash brought for goodwill is first debited to Bank A/c (credited to Premium for Goodwill A/c) and then shared; his current account is not debited.
Option (3) When the new partner does not bring goodwill in cash, partly or fully, and the value of goodwill appears in the books is not written off. — Incorrect. Goodwill already in the books is written off among the old partners in the old ratio at the time of admission; it is not left standing.
Option (4) When the new partner does not bring goodwill in cash, partly or fully, and goodwill exists in the books, at new value of goodwill. — Incorrect. When goodwill exists in the books, the existing goodwill must first be written off by debiting the old partners’ capital accounts; the entry in the question alone does not describe that case.
NCERT (2026-27 edition): |