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JAMB Principles of Accounts 2004 Question 42

Question 42

Partnership Admission, Retirement and Dissolution

The accounting entry to record the premium on goodwill is to debit

  1. A.cash and credit old partners' capital
  2. B.goodwill and credit revaluation
  3. C.assets and credit capital
  4. D.capital and credit assets
Show the answer and explanation

Answer: A (cash and credit old partners' capital)

Explanation

The premium the new partner pays comes in as cash (debit cash) and belongs to the old partners for the goodwill they built up (credit their capital accounts).