When a new partner brings his share of goodwill in cash, the amount is credited to:

When a new partner brings goodwill in cash, the accounting treatment involves recognizing this as a premium for admission into the firm.

Journal Entry

The entry recorded is:

Particulars	Debit	Credit
Cash/Bank A/c	Dr.	₹ xxx
To Premium for Goodwill A/c		₹ xxx
(Being goodwill brought in cash by new partner)

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Explanation

Premium for Goodwill Account is credited because:

• The goodwill amount brought by the new partner is a premium paid for gaining the right to share in the accumulated profits and reputation of the existing firm
• This amount represents compensation to the old partners for admitting a new partner
• It is not the new partner's capital contribution, but an additional payment over and above the capital

Why not other options?

• Capital account of new partner: Only the capital contribution goes here, not goodwill premium
• Cash/Bank account: This is debited (not credited) as cash is received
• Capital account of old partners: The premium is first credited to Premium for Goodwill A/c, and then distributed among old partners in their sacrificing ratio in a subsequent entry

The Premium for Goodwill account is later distributed to old partners based on their sacrificing ratio.

Correct Answer: Option 1 - Premium for goodwill account