Arjun and Veer are partners in a firm. They admit Kabir as a new partner, who brings his share of capital and goodwill in cash.

What is the correct treatment of the goodwill (premium) amount brought in by Kabir?

Only Kabir’s goodwill (premium) will be distributed among sacrificing partners in their sacrificing ratio

The correct answer is option 2- Only Kabir’s goodwill (premium) will be distributed among sacrificing partners in their sacrificing ratio.

When a new partner is admitted to the partnership, the existing partners may need to make a sacrifice in their profit-sharing ratios to accommodate the new partner. The sacrifice ratio is the ratio in which existing partners agree to reduce their shares in favor of the new partner. It is calculated by deducting new ratio from old ratio. When the new Partner brings goodwill in cash. The amount of premium brought in by the new partner is shared by the existing partners in their ratio of sacrifice. 

The following journal entries will be passed- 

(A) Capital & goodwill brought in by new partner -
         Cash A/c Dr.
             To Partner's Capital A/c
             To premium for goodwill A/c

(B) Goodwill share brought by new partner is transferred to sacrificers-
            Premium for goodwill A/c Dr.
                To Partner's Current/Capital A/c