In case of admission of a partner, the new partner brings ₹20,000 only as his share of premium for goodwill out of ₹50,000. Journal entry for the adjustment of goodwill will be:
Answer & explanation
Correct answer: option 3
The correct answer is option 3-
Premium for Goodwill A/c Dr. ₹20,000
Incoming partners current A/c Dr. ₹30,000
To sacrificing partners capital A/c's ₹50,000
When goodwill does not exist in the books, sacrificing partners are credited with their share of goodwill and new partner is debited by the amount of goodwill not brought by him. The journal entry in this case is-
Incoming (New) Partners Current A/c Dr.
To Sacrificing Partners Capital A/c (individually)
(Account of goodwill not brought in by new partner)
Sometimes the new partner brings part of premium for goodwill in cash. In such a situation, new partners current account will be debited by the amount not brought by new partner.
So, in this case 20,000 is brought by new partner which is credited to sacrificing partner for adjustment of goodwill.
The journal entry for brought up amount of goodwill is -
Bank A/c Dr. 20,000
To Premium for goodwill A/c 20,000
So, entry for adjustment of goodwill will be-
Premium for Goodwill A/c Dr. ₹20,000
Incoming partners current A/c Dr. ₹30,000
To sacrificing partners capital A/c's ₹50,000