The journal entry for treatment of goodwill, when a new partner brings his share of goodwill in cash and one of the old partners gains, involves the following:
(A) Gaining Partner's Capital Account is debited
(B) Premium for Goodwill Account is debited
(C) Sacrificing Partner's Capital Account is credited
(D) Gaining Partner's Capital Account is credited
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B), and (C) only
The premium for goodwill brought in cash is first credited to Premium for Goodwill Account and then given to the partners who sacrificed. Where an old partner gains (his new share is more than his old share), he too must pay the sacrificing partners for the share he gains.
(A) Gaining Partner’s Capital Account is debited Correct. The old partner who gains compensates the sacrificing partner for his gain, so his capital account is debited.
(B) Premium for Goodwill Account is debited Correct. The cash is first credited to Premium for Goodwill Account; this account is then debited to distribute the premium.
(C) Sacrificing Partner’s Capital Account is credited Correct. The sacrificing partner receives the premium and the gaining partner’s compensation, so his capital account is credited.
(D) Gaining Partner’s Capital Account is credited Incorrect. A gaining partner pays for his gain; he receives nothing, so his capital account is debited, not credited.
The entries are:
Bank A/c Dr. To Premium for Goodwill A/c
Premium for Goodwill A/c Dr. and Gaining Partner’s Capital A/c Dr. To Sacrificing Partner’s Capital A/c
NCERT (2026-27 edition): NCERT (2026-27 edition): |