Q.Select the odd one out.

The odd one out is (d) Accumulated Loss, because it is a debit item borne by the old partners, unlike the other three which are credits distributed to them.

When a partner is admitted, several past items are adjusted among the old partners in their old ratio (Tamil Nadu HSC Commerce syllabus, Admission of a Partner):

• Revaluation Profit — a gain on revaluing assets/liabilities, credited to old partners.
• Investment Fluctuation Fund — a reserve/credit, its surplus is credited to old partners.
• Goodwill brought by the new partner — credited to the sacrificing (old) partners.
• Accumulated Loss — a past loss, debited to old partners. …

Goodwill brought in by the new partner is credited to the sacrificing partners.

On admission, the new partner acquires his share of profit only because the existing partners sacrifice part of theirs (Admission of a Partner, TN HSC Commerce). The premium (goodwill) he brings is therefore a compensation to those who sacrifice. It is credited to the sacrificing partners' capital accounts in their sacrificing ratio — not to the new partner, and not necessarily to all old …

Goodwill brought in by a new partner is credited to the Capital accounts of the sacrificing partners in their sacrificing ratio — option (c).

In the Admission of a Partner topic of the TN HSC Commerce syllabus, a new partner acquires his share of future profits from the existing partners, who therefore sacrifice part of their share. To compensate them, the new partner pays a premium for goodwill.

When the goodwill (premium) is brought in cash and retained in the business, the accounting treatment is:

Cash/Bank A/c Dr.

To Premium for Goodwill A/c

Premium for Goodwill A/c Dr.

To Sacrificing Partners' Capital A/c (in the sacrificing ratio)

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