Accountancy Part AAdmission of a Partner

Where a new partner brings his share of capital and goodwill in cash.…

Where a new partner brings his share of capital and goodwill in cash. Identify the correct treatment from the following options.

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → Only new partner's premium will be distributed among sacrificing partners in their sacrificing ratio.

The new partner’s capital is credited to his own capital account. His premium for goodwill compensates the old partners for the share of profit they give up, so it is credited to them in their sacrificing ratio.

Option (1) New partner's capital and his premium, both will be distributed among the existing partners in existing profit sharing ratio. — Incorrect. The capital stays with the new partner, and the premium follows the sacrificing ratio.

Option (2) Only new partner's capital will be distributed among the existing partners in existing profit sharing ratio. — Incorrect. Capital is never distributed among the old partners.

Option (4) Only new partner's premium will be distributed among gaining partners in their gaining ratio. — Incorrect. A gaining partner pays compensation; he does not receive the premium.

NCERT (2026-27 edition):
Sacrificing Ratio – “… As stated earlier, the new partner is required to compensate the old partner’s for their loss of share in the super profits of the firm for which he brings in an additional amount as premium for goodwill. This amount is shared by the existing partners in the ratio in which they forgo their shares in favour of the new partner which is called sacrificing ratio.”