If a new partner does not bring his share of goodwill in cash, the following treatment shall be made

When a new partner is admitted to the partnership, they must compensate the old partners for their share in the firm's goodwill. If this goodwill is not brought in cash, an adjustment entry is required.

Accounting Treatment:

The new partner's account is debited (reducing their capital/current balance) and the old partners' accounts are credited (increasing their capital) in their sacrificing ratio.

Account	Debit	Credit
New Partner's Current/Capital A/c	xxx
Old Partners' Capital A/c (in sacrificing ratio)		xxx

Why sacrificing ratio?

The sacrificing ratio represents the proportion in which old partners give up their share in favor of the new partner. Only those partners who sacrifice should receive compensation for goodwill, and in the proportion they sacrifice.

For example, if old partners A and B sacrifice in 3:2, they should receive goodwill compensation in 3:2 ratio.

Why not new ratio?

The new ratio shows the profit-sharing after admission but doesn't reflect who sacrificed how much. Hence, Option 1 is incorrect.

Why not Premium Account?

Premium for Goodwill Account is used only when goodwill is brought in cash. Since cash is not brought, this account is not involved. Hence, Option 3 is incorrect.

The correct answer uses the new partner's current account for adjustment, which is a common practice to keep capital accounts intact while making adjustments.