Joint venture Introduction to joint venture Joint venture account with the other partner Memorandum joint venture accounts Extra readings Past paper questions. Model questions. Summary prepare ledger accounts for joint ventures calculate the profit for joint ventures.

1. Joint Ventures
1Accounting with Sanjaya
Joint ventures
Sanjaya Jayasundara
B.Sc.(Finance) Sp.
University of Sri Jayewardenepura,
Investment Advisor,
International School Teacher

2. Joint Ventures
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Content
Introduction.
Joint venture account with the other partner
Memorandum joint venture accounts
Extra readings
Past paper questions.
Model questions.
Summary
Syllabus according to Cambridge
1.3 Consignment and Joint venture accounts
Candidates should be able to distinguish between consignments and joint ventures
and the environment in which they operate.
Candidates should be able to:
• prepare ledger accounts for consignment transactions, including the calculation of
closing inventory valuation
• prepare ledger accounts for joint ventures
• calculate the profit for joint ventures.

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Introduction
Joint venture is a form of temporary partnership formed to undertake one particular business
transaction that will be mutually beneficial to all the parties involved.
Each party to a joint venture opens a joint venture account, which is debited with all
expenditure undertaken in pursuit of the venture – that is, payments for goods and other
expenses. The account is credited with venture receipts.
Each party to the joint venture will only record the transactions that they have undertaken. All
the transactions relating to the venture cannot be found in only one set of books of account.
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Example 01:
Abdul and Imasha enter into a joint venture. They both supply materials and sell the finished
products. Profits are to be shared Abdul ¾ and Imasha ¼.
$
Materials supplied
Abdul 8 750
Imasha 5 600
Wages paid
Abdul 2 390
Imasha 4 300
Abdul paid warehouse costs 815
Abdul paid delivery costs 419
Other selling expenses paid
Abdul 481
Imasha 1005
Cash received from sales
Abdul 19 780
Imasha 5 410
Required:
Prepare the entries relating to the joint venture in the books of accounts of:
a. Abdul
b. Imasha

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Answer:
a. Joint venture with Imasha
$ $
b. Joint venture with Abdul
$ $
The entries shown above use basic double-entry principles.
In Abdul’s books of account there will be a credit entry in the purchases account of $8 750;
there will be four credit entries in his cash book for $2 390; $815; $419 and $1005. There will
be a debit entry in the cash book for $19 780.
In Imasha’s books of account there will be three credit entries: Purchases $5 600;Cash $4 300
and $307.
It’s is important to know:
Deal with each party to the joint venture separately. In the example above, make the
entries in Abdul’s books of account. When you have completed these, make the
entries in Imasha’s books. Do not attempt to do both sets of entries at the same time.
Memorandum joint venture account
At this point each party is only aware of the transactions conducted by themselves. They will
be unaware of the detailed transactions undertaken by the other person. They will probably
not know whether or not the venture has been profitable or the amount of cash to be
transferred between them to settle the arrangement.
The two parties involved will then supply information regarding their own transactions to the
other party. Both parties merge all the information into a memorandum account.
The memorandum joint venture account is in reality an income statement for the venture which
reveals the profit or loss generated. This profit or loss is then shared in some pre-arranged

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ratio and entered in the partner’s individual joint venture account, which is closed by cash
transfers.
Example 02:
Prepare the following Memorandum joint venture account and Joint venture accounts with
other partner by referring the example 01.
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Abdul and Imasha memorandum joint venture account.
$ $
The parties enter the profit in their own joint venture accounts. They can then calculate the
amount of cash to be transferred to draw the venture to close.
In Abdul’s books of account:
Joint venture with Imasha
$ $

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In Imasha’s books of account:
Joint venture with Abdul
$ $
Joint ventures do not guarantee profits for the parties concerned. Losses would be
borne in the agreed ‘profit’- sharing ratios.
Past Paper Questions
May/June 2019 – Variant 32

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d)
Roberto account
$ $
Sasha account
$ $
e)……………………………………………………………………………………………………………………………………………………….
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October/ November 2018 – Variant 32

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a)
I.
Joint venture Account
$ $
II.
Alice Account
$ $
III.
Belinda Account
$ $
IV.
Joint venture bank account
$ $

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b)
I. Belinda’s share of profit
$
II.
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Extra Readings
6 tips for a successful joint venture
A joint venture is when two or more businesses pool their resources and expertise to achieve
a particular goal. A clear agreement is an essential part of building a good joint venture
relationship. Here are some additional key considerations:
1. Plan carefully. Every partnership should begin with careful planning. Before you proceed, you should review your
business strategy to see if a joint venture is the best way to achieve your aims. Analyse strengths and weaknesses of
both businesses to see if your partner is a good match.
2. Communication is a key part of building the relationship. Make sure that everyone involved understands the
basics of the joint venture agreement, as well as the fine details, including goals, financial contributions, human
resources and expected length of the deal. It's usually a good idea to arrange regular, face-to-face meetings for all the
key people involved in the joint venture.
3. Build trust. Sharing information openly, particularly on financial matters, also helps avoid partners becoming
suspicious of each other. The more trust there is, the better the chances that your relationship will work.
4. Monitor performance. It's essential that everyone knows what you are trying to achieve and works
towards the same goals. Establishing clear performance indicators lets you measure performance and can
give you early warning of potential problems.
5. Be flexible. With two companies making decisions, things can get complex even with simple projects.
You should aim for a flexible relationship. Regularly review how you could improve the way things work and
whether you should change your objectives.
6. Find a way to deal with problems. Even in the best relationship, you'll almost certainly have problems
from time to time. Approach any disagreement positively, looking for 'win-win' solutions rather than trying to
score points off each other. Your original joint venture agreement should set out agreed dispute resolution
procedures in case you are unable to resolve your differences.
Forming a joint venture can be challenging, but if done right, it can be worth the effort. It can move your business
in a positive direction and offer opportunities through increased revenue and reputation.
Read more about joint venture - benefits and risks.
https://www.nibusinessinfo.co.uk/content/6-tips-successful-joint-venture

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October/November 2018 - Variant 33

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a)
$
b)
i.
Zarina’s books
Joint venture with Kia
$ $
ii.
Kia’s books
Joint venture with Zarina
$ $
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February/March 2018 - Variant 32

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a)
$
b)
Raj’s books
Joint venture with John Account
$ $
John’s books
Joint venture with Raj Account
$ $
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May /June 2017 - Variant 31/33
a)……………………………………………………………………………………………………………………………………………………….
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b)
$ $
c) Greaves Account
$ $
Hurst Account
$ $
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May /June 2016 - Variant 31/33

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a)
Ahmed and Bashmir
Memorandum Joint Venture Account
$ $
b)
Books of Ahmed
Joint venture with Bashmir account
$ $
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Test your understanding:
1 ‘Joint ventures are a temporary type of partnership.’ Is this statement true or false?
2 ‘ Only two parties can be involved in a joint venture.’ True or false?
3 Explain the difference between a joint venture and a partnership.
4 ‘ A joint venture can only be entered into by people living in different countries. ‘ True or
false?
Chapter Summary
 Joint ventures are short-term partnerships lasting for one particular business
opportunity for the parties involved.
 Each party to the venture records only their own transactions involved in the venture.
 The parties concerned merger their records of the venture in a memorandum account
to determine the profit (or loss) earned when the venture is completed.
 The profit (or loss) is shared between the parties in an agreed ratio.
 The profit (or loss) is entered into the joint venture accounts to calculate the cash
transfers required to terminate the venture.
 The profit or loss is posted to the income statement of each of the parties.
All the best children…!
I wish you an enjoyable learning session...!
Sanjaya Jayasundara
Like me on FB: “Accounting with Sanjaya Sir”