Under premium method, the new partner brings his share of goodwill in cash. The amount so brought in by him is shared among the old partners in the sacrificing ratio.
The journal entries here are:
1. Cash a/c Dr. To premium for goodwill a/c (cash brought in by the new partner for goodwill)
2. Premium for good will a/c To old partners capital a/c (Goodwill shared among the old partners)
“If the amount of premium is paid privately to the old partners, no need of entering the same in the books.”
