At the time of admission of a new partner, in the case of fixed capital method, if the sacrificing partner withdraw their amounts of goodwill (in full or in part), the following journal entry will be recorded :-

Under the Fixed Capital Method, all adjustments (except original capital and permanent changes) are recorded in the Current Account, not the Capital Account.

When a new partner is admitted:

• The new partner brings in their share of goodwill
• This goodwill is credited to the Current Accounts of sacrificing partners (in their sacrificing ratio)
• The Capital Account remains unchanged as it is fixed

When sacrificing partners withdraw the goodwill amount, the entry reverses the credit given to their Current Accounts:

Sacrificing Partners' Current A/c Dr.

To Bank A/c

This entry:

• Debits the Current Account (reducing the balance that was earlier credited with goodwill)
• Credits Bank Account (cash going out of the business)

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Why not Capital Account?

In Fixed Capital Method, the Capital Account balance remains constant throughout. All profits, losses, drawings, and adjustments flow through the Current Account only. Since goodwill was originally credited to Current Account, its withdrawal must also be debited to Current Account.

Why not Gaining Partners?

Gaining partners are those who increase their profit-sharing ratio. They don't receive goodwill; instead, they compensate the sacrificing partners. Only sacrificing partners (who reduce their share) receive and can withdraw goodwill amounts.

Correct Option: 2