The journal entries are as under

Incoming partners' current A/c. Dr.

To Sacrificing partners capital A/c.

What statement among the following is TRUE for the above entry?

The given journal entry represents the adjustment for goodwill when it is not brought in cash by the incoming partner.

When a new partner is admitted, the old partners sacrifice a portion of their share in profits. They deserve compensation for this sacrifice in the form of goodwill.

Analysis of the entry:

Incoming Partner's Current A/c Dr.

To Sacrificing Partners' Capital A/c

This entry shows:

• The incoming partner's current account is debited (becomes a liability for the incoming partner)
• The sacrificing partners' capital accounts are credited (they receive their compensation)

Why Option 2 is correct:

When the new partner does not bring goodwill in cash and no goodwill exists in the books, the firm needs to adjust the accounts internally.

The new partner's share of goodwill = $\text{Total Goodwill} \times \text{New Partner's Share}$

Since the incoming partner hasn't paid this amount in cash, it is adjusted by:

• Creating a debt against the incoming partner (by debiting their current account)
• Compensating the sacrificing partners (by crediting their capital accounts in sacrificing ratio)

This is purely an adjustment entry that ensures the sacrificing partners receive their due compensation even though no cash has been brought in by the new partner.

Note: In other options, different entries would be required - cash entry for Option 1, write-off entries for Options 3 and 4.