AccountsISC Class 12 · Reconstitution of Partnership: Admission

Treatment of Goodwill on Admission of a Partner: ISC Class 12 Accounts

Updated 15 October 2026 · Fact-checked

A new partner compensates the old partners for the share of future profits they give up. Under AS-26 no Goodwill Account is raised: his premium for goodwill is credited to the sacrificing partners in the sacrificing ratio. If he cannot bring it in cash, his current account is debited. Existing goodwill is written off in the old ratio.

Notice the premium is shared only by the sacrificing partners, in the sacrificing ratio (old share minus new share), and no Goodwill Account is opened.

Illustration drawn for QuestionBuddy.

Understand Treatment of Goodwill on Admission

Why goodwill matters on admission. The old partners built the firm's reputation. When a newcomer takes a share of future profits, they give up (sacrifice) part of their shares, and the newcomer pays them for it. That payment is his premium for goodwill. By contributing it he acquires the right to share in the firm's future profits (a 2025 ISC MCQ).

Ratios first.

New ratio: if the new partner's share is taken from old partners in their old ratio, multiply each old share by (1 − new partner's share). If specific sacrifices are given, subtract them from the old shares.
Sacrificing ratio = Old share − New share for each old partner. If a partner's new share is larger than his old share, he has gained and must also compensate the sacrificers.
If nothing is said, the new partner's share is taken in the old ratio, so the sacrificing ratio equals the old ratio.

AS-26 and the six cases in the syllabus. Only purchased goodwill may be recorded, so no Goodwill Account is raised on admission.

(a) Premium paid privately to the old partners: no entry in the firm's books.
(b) Premium brought in cash and retained: Bank Dr; To Premium for Goodwill A/c. Then Premium for Goodwill A/c Dr; To Sacrificing Partners' Capital A/cs (sacrificing ratio). Premium in kind (an asset): the asset is debited instead of Bank.
(c) Premium withdrawn by the old partners: additionally, Sacrificing Partners' Capital A/cs Dr; To Bank.
(d) Premium not brought in cash: New Partner's Current A/c Dr; To Sacrificing Partners' Capital A/cs. If part is brought, the cash part follows (b) and the balance goes through his current account.
(e) Hidden goodwill: when the new partner's capital implies a bigger firm than the actual capitals. Total capital implied by his contribution − (old partners' adjusted capitals + new partner's capital) = hidden goodwill. Then treat his share of it as premium not brought in cash.
(f) Goodwill already in the old Balance Sheet: write it off among the old partners in the old ratio before anything else: Old Partners' Capital A/cs Dr; To Goodwill A/c.

Gaining partner. If an old partner gains on admission, he compensates the sacrificers too: Gaining Partner's Capital A/c Dr; To Sacrificing Partner's Capital A/c, along with the newcomer's premium.

Treatment of Goodwill on Admission: key facts

New partner's premium: Premium = Firm's goodwill × New partner's share
Sacrificing ratio: Old share − New share (for each old partner); Negative = gain.
New share when sacrifice is in the old ratio: Old share × (1 − New partner's share)
Hidden goodwill: New partner's capital × reciprocal of his share − (Old partners' adjusted capitals + New partner's capital); Adjusted capitals include reserves and revaluation.
Six cases of premium (syllabus): Paid privately no entry
Cash retained Bank → Premium → sacrificers
In kind Asset → Premium → sacrificers
Withdrawn sacrificers' capital Dr, Bank Cr
Not brought new partner's current A/c Dr
Old goodwill written off in old ratio

Paid privately	no entry
Cash retained	Bank → Premium → sacrificers
In kind	Asset → Premium → sacrificers
Withdrawn	sacrificers' capital Dr, Bank Cr
Not brought	new partner's current A/c Dr
Old goodwill	written off in old ratio

How to answer Treatment of Goodwill on Admission questions

Goodwill entries are worth 2-3 marks in a 6- or 10-mark ISC admission problem. Work the ratios before any entry.

1Write the old ratio; find the new ratio and the sacrificing ratio (note any partner who gains).
2Write off goodwill already in the books among old partners in the old ratio.
3Find the new partner's premium: firm's goodwill × his share, or hidden goodwill × his share.
4Record cash or kind brought (Bank or asset Dr; To Premium for Goodwill).
5Credit the sacrificers in the sacrificing ratio; any shortfall is debited to the new partner's current account.
6Record any withdrawal of premium by old partners.

Treatment of Goodwill on Admission in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Paying for a share of existing customers

Suppose two friends run a tiffin service with 200 regular customers, and its reputation is valued at ₹3,00,000. A new cook joins for one-fifth of future profits, which the two friends give up equally.

How much should the cook pay as premium, and to whom?

Try it first, then show the solutionSolution

Premium = 3,00,000 × 1/5 = ₹60,000.
The friends sacrifice equally, so each receives ₹30,000.

Answer: ₹60,000, paid ₹30,000 to each friend for the customers they share with her.

Memory hook: Whoever gives up a share gets paid for it.

Tricks to remember Treatment of Goodwill on Admission

Short memory aids. Say each one aloud once, then use it on a question the same day.

Old minus New = Sacrifice
Sacrifice = Old share − New share; negative means a gain.
Use it when: Every admission ratio question.
No cash? Current account
Premium not brought in cash is debited to the new partner's current account (ISC syllabus).
Use it when: Case (d) and hidden goodwill.
Old goodwill, old ratio
Goodwill already in the books is written off among old partners in the old ratio.
Use it when: Case (f).

Treatment of Goodwill on Admission: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Premium paid privately · 1 mark · MCQBoard level

A new partner pays his premium for goodwill directly to the old partners outside the business. The entry in the firm's books is:
(a) Bank Dr; To Premium for Goodwill
(b) Premium for Goodwill Dr; To Old Partners' Capitals
(c) New Partner's Current Dr; To Old Partners' Capitals
(d) No entry

Try it first, then show the solutionSolution

The money never enters the firm.
So the firm's books record nothing.

Answer: (d) No entry

Example 2: Premium in cash, sacrificed in the old ratio · 3 marks · Short answerBoard level

Amit and Bela share profits 3:2. They admit Chirag for one-fourth share. The firm's goodwill is valued at ₹1,60,000. Chirag brings his share of goodwill in cash. Pass the journal entries. (3 marks)

Try it first, then show the solutionSolution

Premium = 1,60,000 × 1/4 = ₹40,000; sacrificing ratio = old ratio 3:2.
Bank A/c Dr 40,000; To Premium for Goodwill A/c 40,000.
Premium for Goodwill A/c Dr 40,000; To Amit's Capital 24,000; To Bela's Capital 16,000.

Answer: Amit ₹24,000 and Bela ₹16,000 credited.

Example 3: New ratio and sacrificing ratio from given sacrifices · 3 marks · Short answerHarder board level

Esha and Farid share profits 5:3. Gaurav is admitted for one-fifth share, which he takes 3/20 from Esha and 1/20 from Farid. Calculate the new profit-sharing ratio and the sacrificing ratio. (3 marks)

Try it first, then show the solutionSolution

Esha = 5/8 − 3/20 = 25/40 − 6/40 = 19/40.
Farid = 3/8 − 1/20 = 15/40 − 2/40 = 13/40. Gaurav = 1/5 = 8/40.
New ratio 19:13:8; sacrificing ratio 3/20 : 1/20 = 3:1.

Answer: New ratio 19:13:8; sacrificing ratio 3:1.

Example 4: Part premium in cash, existing goodwill in the books · 6 marks · Long answerHarder board level

Pooja and Qadir share profits 2:1. Their Balance Sheet shows Goodwill ₹30,000. Rana is admitted; the new ratio is Pooja 2/4, Qadir 1/4, Rana 1/4. The firm's goodwill is valued at ₹1,20,000. Rana brings ₹1,50,000 as capital but only ₹18,000 of her premium. Pass the journal entries. (6 marks)

Try it first, then show the solutionSolution

Write off old goodwill (old ratio): Pooja's Capital Dr 20,000; Qadir's Capital Dr 10,000; To Goodwill 30,000.
Sacrifice: Pooja 2/3 − 1/2 = 1/6; Qadir 1/3 − 1/4 = 1/12; ratio 2:1. Rana's premium = 1,20,000 × 1/4 = ₹30,000.
Bank Dr 1,68,000; To Rana's Capital 1,50,000; To Premium for Goodwill 18,000.
Premium for Goodwill Dr 18,000; To Pooja's Capital 12,000; To Qadir's Capital 6,000.
Balance ₹12,000: Rana's Current A/c Dr 12,000; To Pooja's Capital 8,000; To Qadir's Capital 4,000.

Answer: Pooja receives ₹20,000 and Qadir ₹10,000 for goodwill (₹18,000 in cash, ₹12,000 via Rana's current account).

Example 5: Hidden goodwill · 6 marks · Long answerHOTS / competency

Xavier and Yamini share profits 3:2. Their capitals after all adjustments are ₹2,40,000 and ₹1,60,000. Zara is admitted for one-fourth share and brings ₹2,00,000 as capital but nothing for goodwill. Calculate hidden goodwill and pass the entry. (6 marks)

Try it first, then show the solutionSolution

Total capital implied = 2,00,000 × 4 = ₹8,00,000.
Actual total = 2,40,000 + 1,60,000 + 2,00,000 = ₹6,00,000; hidden goodwill = ₹2,00,000.
Zara's share = 2,00,000 × 1/4 = ₹50,000, credited to sacrificers in 3:2.
Zara's Current A/c Dr 50,000; To Xavier's Capital 30,000; To Yamini's Capital 20,000.

Answer: Hidden goodwill ₹2,00,000; Zara's current account debited ₹50,000.

Example 6: An old partner gains on admission · 3 marks · Short answerHOTS / competency

Asha and Bilal share profits equally. Charu is admitted and the new ratio is 3:1:1. Goodwill is valued at ₹1,00,000 and Charu brings her premium in cash. Pass the journal entries. (3 marks)

Try it first, then show the solutionSolution

Asha: 1/2 − 3/5 = −1/10 (gain ₹10,000). Bilal: 1/2 − 1/5 = 3/10 (sacrifice ₹30,000). Charu's premium = 1,00,000 × 1/5 = ₹20,000.
Bank Dr 20,000; To Premium for Goodwill 20,000.
Premium for Goodwill Dr 20,000; Asha's Capital Dr 10,000; To Bilal's Capital 30,000.

Answer: Bilal is credited ₹30,000: ₹20,000 from Charu and ₹10,000 from Asha.

Where students lose marks in Treatment of Goodwill on Admission

The slips examiners see most often, and what to write instead.

Mistake: Raising a Goodwill Account on admission
Following old textbook methods.
Wrong working
Goodwill A/c Dr 1,20,000; To Old Partners' Capitals
Right working
Premium credited to sacrificers; no Goodwill Account
Do this: AS-26 allows only purchased goodwill to be recorded.
Usually costs: Most of the goodwill marks.
Mistake: Crediting premium in the old ratio when sacrifices differ
Not working out the sacrificing ratio.
Wrong working
Premium 30,000 to Pooja and Qadir in 2:1 without checking
Right working
Check: sacrifice 1/6 and 1/12, which happens to be 2:1 here; in other cases it differs
Do this: Always compute old − new for each partner.
Usually costs: 1-2 marks.
Mistake: Debiting the new partner's capital account for premium not brought
Treating it like capital.
Wrong working
Rana's Capital A/c Dr 12,000
Right working
Rana's Current A/c Dr 12,000
Do this: The ISC syllabus specifies the incoming partner's current account.
Usually costs: 1 mark.
Mistake: Forgetting to write off existing goodwill
Missing it on the old Balance Sheet.
Wrong working
Goodwill 30,000 carried to the new Balance Sheet
Right working
Written off among old partners in the old ratio
Do this: Scan the assets side for Goodwill before you start.
Usually costs: 1 mark.

Exam tips

Show the sacrificing-ratio working even when it equals the old ratio; examiners give credit for it.
Use 'Premium for Goodwill A/c' as the account name, as the CISCE syllabus does.
In hidden goodwill, use the old partners' capitals after revaluation and reserves.
If premium is brought in kind, debit that asset (e.g. Stock A/c) instead of Bank.

Practice questions on Treatment of Goodwill on Admission

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
As per AS-26, a Goodwill Account can be raised in the books only when:
(a) a partner is admitted
(b) a partner retires
(c) goodwill is purchased for a consideration
(d) the profit-sharing ratio changes
Hint
Purchased goodwill only.
Answer
(c) goodwill is purchased for a consideration
Q2 · 1 mark · MCQBoard level
The sacrificing ratio is calculated as:
(a) New share − Old share
(b) Old share − New share
(c) Old share × New share
(d) New share ÷ Old share
Hint
What was given up.
Answer
(b) Old share − New share
Q3 · 3 marks · Short answerBoard level
Mohan and Nita share profits 3:1. Om is admitted for one-fifth share, taken from them in their old ratio. Calculate the new ratio. (3 marks)
Hint
Multiply each old share by 4/5.
Answer
Mohan 3/4 × 4/5 = 12/20; Nita 1/4 × 4/5 = 4/20; Om 4/20. New ratio 3:1:1.
Q4 · 3 marks · Short answerHarder board level
A new partner brings ₹36,000 as premium for a one-sixth share; the two old partners sacrifice 1/12 each. Pass the entries and find the firm's goodwill. (3 marks)
Hint
Equal sacrifice.
Answer
Bank Dr 36,000; To Premium for Goodwill 36,000. Premium for Goodwill Dr 36,000; To each old partner's capital 18,000. Firm's goodwill = 36,000 × 6 = ₹2,16,000.
Q5 · 3 marks · Short answerHarder board level
Goodwill of ₹40,000 appears in the books of Ravi and Sona (equal partners) when Tia is admitted. Tia brings ₹25,000 premium in cash, which the old partners withdraw in full; they sacrifice equally. Pass the journal entries. (3 marks)
Hint
Write off, receive, distribute, withdraw.
Answer
Ravi's Capital Dr 20,000; Sona's Capital Dr 20,000; To Goodwill 40,000. Bank Dr 25,000; To Premium for Goodwill 25,000. Premium for Goodwill Dr 25,000; To Ravi's Capital 12,500; To Sona's Capital 12,500. Ravi's Capital Dr 12,500; Sona's Capital Dr 12,500; To Bank 25,000.
Q6 · 6 marks · Long answerHarder board level
Uday and Vani share profits 2:1. Wasim is admitted for one-third share, sacrificed in the old ratio. Goodwill is ₹90,000 but Wasim cannot bring any premium. Pass the entry. (6 marks)
Hint
Current account.
Answer
Premium = 90,000 × 1/3 = 30,000. Wasim's Current A/c Dr 30,000; To Uday's Capital 20,000; To Vani's Capital 10,000.
Q7 · 1 mark · Assertion-reasonHarder board level
Assertion (A): No entry is passed in the firm's books when the premium for goodwill is paid privately to the old partners.
Reason (R): The premium does not pass through the business.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Business entity concept.
Answer
(a) Both A and R are true, and R is the correct explanation of A.
Q8 · 6 marks · Long answerHarder board level
Old partners (equal shares) have adjusted capitals of ₹3,00,000 and ₹2,40,000. A new partner joins for one-fourth share with capital of ₹2,00,000 and no premium. Calculate hidden goodwill and pass the entry. (6 marks)
Hint
Implied total ₹8,00,000.
Answer
Hidden goodwill = 8,00,000 − 7,40,000 = 60,000; new partner's share 15,000. New Partner's Current A/c Dr 15,000; To each old partner's capital 7,500.
Q9 · 6 marks · Long answerHOTS / competency
Asif and Bina share profits 3:2. Chetna is admitted and the new ratio is 4:5:3. Goodwill is valued at ₹1,20,000 and Chetna brings her share in cash. Pass the entries. (6 marks)
Hint
Bina's share rises from 24/60 to 25/60.
Answer
Asif sacrifices 36/60 − 20/60 = 16/60 (₹32,000); Bina gains 1/60 (₹2,000). Chetna's premium = 1,20,000 × 3/12 = ₹30,000. Bank Dr 30,000; To Premium 30,000. Premium Dr 30,000; Bina's Capital Dr 2,000; To Asif's Capital 32,000.
Q10 · 3 marks · Short answerHOTS / competency
Kiran and Lata share profits equally; Mira joins and the new ratio is 2:1:1. Goodwill is ₹1,20,000. Show that raising goodwill in the old ratio and writing it off in the new ratio has the same net effect as debiting Mira's current account with her premium. Why does the syllabus prefer the latter? (3 marks)
Hint
Compare the net effects.
Answer
Raise 60,000 each, write off 60,000/30,000/30,000: net Kiran 0, Lata +30,000, Mira −30,000. Premium route: Lata sacrifices 1/4 = 30,000; Mira's Current Dr 30,000; To Lata 30,000. Same result, but AS-26 forbids recording self-generated goodwill, so the premium route is used.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Goodwill ₹2,40,000; new partner's share 1/6: premium?Show answer
₹40,000.
2.Old 3/5, new 2/5: sacrifice?Show answer
1/5.
3.Which account is debited when premium is brought in kind as stock?Show answer
Stock A/c.
4.Existing goodwill in the books is written off in which ratio?Show answer
Old ratio, among old partners.
5.New partner's capital ₹1,00,000 for 1/5 share: implied total capital?Show answer
₹5,00,000.

Treatment of Goodwill on Admission: frequently asked questions

What does the new partner get for his premium?

The right to share in the firm's future profits that the old partners' reputation helps to earn.

Why is premium credited in the sacrificing ratio and not the old ratio?

Because it compensates for the share of profit each old partner gives up. When sacrifice is in the old ratio, both ratios are the same.

What if the new partner brings only part of his premium?

Credit the cash part through Premium for Goodwill A/c, and debit his current account for the rest, both in favour of the sacrificing partners.

When does hidden goodwill arise?

When the capital the new partner brings, scaled up by his share, is more than the firm's actual total capital. The difference is goodwill not shown in the books.