If the premium for goodwill is paid to the old partners directly / privately by the new partner, what journal entry will be recorded in the books of Partnership Firm :-

When the premium for goodwill is paid privately or directly by the new partner to the old partners, this transaction occurs outside the books of the partnership firm.

Since the money does not pass through the firm's cash/bank account, the firm has no knowledge of this private transaction in its accounting records. The payment happens between individuals in their personal capacity, not through the firm.

Therefore, no journal entry is recorded in the partnership firm's books.

Understanding the difference:

When goodwill premium is brought into the firm (through firm's bank):

• Cash/Bank A/c is debited (money comes in)
• Premium for Goodwill A/c is credited
• Then Premium for Goodwill A/c is debited
• Sacrificing Partners' Capital A/cs are credited

When goodwill premium is paid privately (directly from new partner to old partners):

• The transaction bypasses the firm completely
• No entry in firm's books

The correct option is Option 4: No journal entry is recorded.