Multiple choice

Verma and Sharma are partners in a firm sharing profits and losses in the ratio of $5:3$. They admitted Ghosh as a new partner for $1/5^{th}$ share of profits. Ghosh is to bring in $Rs. 20,000$ as capital and $Rs. 4,000$ as his share of goodwill premium. Give the necessary Journal entries, when goodwill is paid privately.

  1. Cash A/c             Dr.      4000     To Goodwill A/c               4000

  2. Goodwill A/c      Dr.       4000      To Cash A/c                    4000

  3. Goodwill  A/c             Dr.      4000           To Verma's Caital A/c      2500           To Sharma's Capital A/c  1500

  4. No entry is required.
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D Correct answer
Explanation

When goodwill is paid privately by a new partner, it does not pass through the firm's books. Therefore, no journal entry is required in the firm's books for the premium for goodwill.

AI explanation

When the incoming partner brings their share of the goodwill premium and pays it to the old partners privately, outside the business, it does not affect the firm's accounts. Because the transaction occurs entirely outside the firm's books, no journal entry is required to be recorded in the company ledger.

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