CBSE Class 12-commerce Answered

Accounting Treatment when Goodwill (Premium on Goodwill) is brought in cash or by cheque by the new or Incoming Partner and is withdrawn by Sacrificing Partners fully or partly: Such amount of premium brought in by the new or incoming partner is shared by the sacrificing partners in the sacrificing ratio. These sacrificing partners may withdraw the premium amount fully or partly. Following entries are to be passed:

• Premium for goodwill brought in cash by the new partner:

                 Cash/Bank A/c                    …Dr. [Amount of premium]

                      To Premium for Goodwill A/c

• Sharing of premium for goodwill:

                 Premium for Goodwill A/c    …Dr. [Amount of premium]

                      To Sacrificing Partners’ Capital A/cs    [Sacrificing ratio]

• Withdrawal of premium money fully/partly:

                Sacrificing Partners’ Capital A/cs  …Dr. [Amount withdrawn]

                       To Cash/Bank A/c