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 following journal entries will be passed at the time of admission for goodwill-
(1) Goodwill brought in by new partner -
Cash A/c Dr.
To premium for goodwill A/c
(2) Goodwill share brought by new partner is transferred to sacrificers-
Premium for goodwill A/c Dr.
To Sacrificing Partner's Current/Capital A/c
* If any old partner gains then he will also compensate the goodwill share to sacrificing partner, so gaining partner is debited. Journal entry in this case is-
Premium for goodwill A/c Dr.
Gaining Partner's Capital A/c Dr.
To Sacrificing Partner's Current/Capital A/c
So, the correct answer is statement (A), (B), and (C).