2. Chapter-one
Accounting
Joint Venture
For Joint venture
• Joint V
enture is a temporary form of
business, where two or more persons join
together to meet the short term objectives.
It is quiet similar to Partnership firm, but
established without name or registration
separately under any law.
2
3. Chapter-one
Accounting For Joint
Co Venturers
• The two or more people who
venture
start Joint
V
enture to achieve the short term
objectives and ready to share the risk and
return in the venture, are called Co-
V
entures. They are similar to Partners in
the Partnership firm.
3
4. Chapter-one
Accounting For Joint venture
The following are the important features of Joint
Venture.
1. Joint venture is a temporary business
arrangement.
It is quiet similar to the form of
partnership.
2.
3. Two or more people join together
meet the short term objectives.
to
4. It does not have any name or
registration separately under any law. 4
5. Difference Between Joint V
enture and Partnership
Partnership
Partnership has its own
name of running business.
Joint Venture
➢
➢Joint V
enture does not have
any name of running
business.
Members in Joint V
enture
are Co-V
entures.
Temporary / short term
objectives are set in joint
venture.
No registration of business
under any law.
No separate set of books
are maintained in the
books of joint venture
➢ ➢Members in Partnership
firm are partners.
Long term objectives are
set in partnership firm.
Registration is optional,
but available.
➢ ➢
➢
➢
➢ ➢Separate set of books are
maintained in the books of
partnership firm
5
6. Difference Between Joint V
enture and Partnership
Partnership
Partners do not have
freedom to do similar
business and complete.
Partnership is dissolved
only at the mutual opinion
of partners
Aminor can become a
partner to the benefits of
the firms
Joint Venture
➢
➢Co-ventures have freedom
to do similar business and
complete.
Joint venture is dissolved
as soon as its work has
been completed.
Aminor cannot become a
co venturer
➢
➢
➢
➢
6
7. 7
Difference Between Joint V
enture and Consignment
Joint venture Consignment
Number of Co-ventures can
be two or more
Co-ventures are the owners
Joint venture is dissolved
as soon as venture completed
All the Co-venturers
contribute funds to a
common pool
The profit is shared by all
co-venturers
It can be for sale of goods,
Construction or investment
Normally two persons are
involved the consignor and
the Consignee
The relationship b/w
Consignor and Consignee is
that principle and agent
The arrangement may
continue for a long time
The funds are provided by
the consignor
The profit belongs to the
consignor only. The
consignee has commission
8. Why do we prepare Joint Venture Account?
It is a normal ledger account, incorporates
transactions made exclusively in Joint
venture to find out its profit or loss. It is
maintained from the starting date of Joint
venture to the date of dissolution.
8
9. Joint BankAccount
It is similar to normal bank account. It
records all expense in the credit side and
all incomes in the debit side. The
contribution of cash made by co-venture’s,
income through sale of goods etc, are
debited and expenses of joint venture,
purchase of goods are credited.
9
10. Memorandum Joint Bank Account
It is not an account prepared under double
entry principles of accounts.All the
expenses paid by each co-ventures are
debited and
co-ventures
co-ventures
the profit or
income (sales) made by each
are credited in the respective
name. it is prepared to find out
loss of joint venture.
10
11. Key Words
Joint V
enture: When two or more persons joint together
to carry out a specific business and share the profits or
losses on predetermined basis, it is known as a joint
venture.
Co-venturer Account: It is a personal account and
debited with sales made by the co-venturer or goods
taken by him and is credited with assets given by him
for the venture and expenses paid by him.
Memorandum Joint V
enture Account: The profit or loss
of the venture is computed in an account which is not
part of the double entry mechanism and is termed as
Memorandum Joint V
enture Account.
11
12. METHODS OF RECORDING JOINT VENTURE
TRANSACTIONS
Joint venture accounts can be kept under any of the
following three methods :
1. Each co-venturer records the transactions
2. Memorandum Joint Venture Account Method
3. Separate Books
12
13. Methods of Accounting for Joint Venture
The accounting treatment for Joint V
enture has been
studied under three board classifications they are.
1.
Each co-venture records the transaction in his own
books and opens "Joint Venture Account" and
accounts of his fellow partners.
2. One common Joint Venture Account on memorandum
basis is prepared to find the profit or loss made on
trading. It is not a part of the double entry system.
Under this system each one of the partners opens only
one account which is of the nature of personal
account. The account is called. "Joint venture with a/c
3. Venturers agree to keep a separate set of books and a
person is made in charge of recording of all
transactions. Generally this method is not adopted 13
14. Journal Entries
Debit
• Anything the ventures put into the
enterprise (e.g. Cash, purchases, expenses
paid etc).
Credit
• Anything the ventures take out of the
enterprise (e.g. Sales and cash withdrawal,
assets withdrawal etc.
14
15. Memorandum of Joint Venture
The memorandum joint venture account is not
a double entry account. It is drawn up only to
find out
a) the shares of the net profit or loss, and
15
16. Memorandum Joint Venture Account
Purchase a/c –total Purchase
by P&Q
Sales a/c
Q
Debtors-
-Total sales by P&
x x
credit sales by P&Q
x
Expense a/c-
by P& Q
Commission
P&Q
Total expenses
x
received by Assets
Assets
taken over by P&Q x
x A/c-stock withdrawals
x
Profit and
P’s Profit
Q’s profit
loss
x
16
17. 1. Each co-venture records the transactions
Under this system the "Joint V
entureAccount" is
opened and debited with the value of goods
bought and expenses incurred. Cash account
or the party which has supplied the goods or
incurred the expenses will be credited. When
the sales proceeds are received, the party
receiving it, will debit cash (for Debtors)
account and credit the Joint V
entureAccount.
The other parties will debit the recipient party
and credit the Joint V
entureAccount.
17
18. • Journal Entries : The following journal entries will be passed
1) For Investment in Joint V
enture
Joint V
entureA/c
To Cash/GoodA/c
Dr.
(Being the amount of goods supplied or cash put in for Joint V
enture)
2) As goods are supplied by
Joint Venture by him
CashA/c (For cash sent)
Joint V
entureA/c
the Co-venturer or cash is invested in
Dr.
Dr.
goods sent)
To Co-venturer A/c (for
(Being goods supplied or cash invested by the other partner)
18
19. 3. For recording sale of joint venture
CashA/c Dr.
To Joint V
enture A/c
(Being Sale of goods made)
goods
4. On sale of joint venture goods
Co-V
enturer A/c Dr.
To Joint V
enture A/c
by the other party
(Being Joint V
enture goods sold by the other partner)
19
20. 8. On commission charged under Joint V
enture
Joint V
enture A/c
To commission
Commission charged
Joint V
enture A/c
To Co-V
enturer
Dr.
A/c
by other partner
Dr.
A/c
9. On
(Being Commission on sale effected by other partners)
10. When some products are
to his own stock.
Purchase A/c
left unsold and transferred
Dr.
To Joint
(Being the unsold
V
enture A/c
goods taken)
20
21. 11. If the other partner has taken the unsold
entry will be:-
goods, the
The Co-venturer A/c
To Joint V
enture A/c
Dr.
(Being the unsold goods taken by the other partner)
12. Now Joint V
enture Account will be closed. If it
shows profit then the profit will be divided
be
Dr.
in the
agreed ratio. The entry
Joint V
enture A/c
To P & LA/c (own
will
share)
To Co-venturers A/c (their share)
(Being the profit on Joint V
enture shared by the parties)
21
22. Format of Two Accounts to be Maintained
Dr. Particulars Particulars Cr.
To Cash A/c (purchased) By Cash A/c
To Cash A/c (Expenses) By Co-V
enturer A/c
To Purchase A/c (Goods Take over)
(Material supplied)
To Outstanding Expenses A/c
To Profit transferred to:
Profit & Loss A/c
Co-venturers A/c
22
23. Co V
enture’
s Personal Account
Dr. Particulars Particulars Cr.
To Joint V
enture A/c By Bills Receivable
(Goods Taken over)
By Joint V
enture A/c
To Cash A/c
23
24. Illustration - 1
X and Y entered into Joint V
enture to sell a
Timber sharing profits and losses equally. X
provides timber from stock at mutually agreed
value of $. 50,000. He pays expenses
amounting to $. 2500. Y incurs further expenses on
sales
of $.
cartage, storage of $. 6500 and receives cash for
takes over goods to the value
$. 30,000. He
10000 for his
balance stock
also
own use.At the close, X takes over the
in hand which is valued at $. 11000.
Pass Journal Entries to record the above transactions
and open the necessary ledger accounts in the books
of X and Y
.
24
25. Journal entries in the
Joint V
enture A/c
To Purchase A/c
To BankA/c
(Being timber provided
Joint V
enture A/c
To Y
Books of X
Dr. 52,500
50,000
2,500
and expenses incurred)
Dr. 6,500
6,500
(Being expenses
Y
incurred by Y)
Dr. 30,000
To Joint V
enture a/c
(Being the sale proceeds by Y)
30,000
25
26. Y Dr. 10,000
To Joint V
enture
(Y takes over the goods
Purchase A/c
To Joint V
enture
A/c
for his
10,000
use)
Dr. 11,000
A/c 11,000
(Being unsold goods taken)
Y
Profit and Loss A/c
Dr.
Dr.
4,000
4,000
To Joint V
enture A/c
V
enture
8,000
(Being the loss
Bank A/c
To Y
on Joint shared
Dr.
equally)
37,500
37,500
(Being draft received from Y)
26
27. Joint V
enture Account
Dr. Particulars Amount Particulars Amount Cr.
To Purchase 50,000 By Y (Sale Proceeds) 30,000
To Bank (expenses) 2,500 By Y (Goods for his use)10,000
To Y (expenses) 6,500 By Purchases (goods) 11,000
By Y (loss) 4,000
By Profit and Loss A/c 4,000
(Ratio being 1:1)
59,000 59,000
27
28. Y’s Account
Dr. Particulars Amount Particulars Amount Cr.
To Joint V
enture (Sale) 30,000 6,500
By Joint V
enture (Expenses)
To Joint V
enture (goods) 10,000 By Bank
(Final Settlement)
37,500
To Joint V
enture (Loss) 4,000
44,000 44,000
28
29. Journal entries in the
Joint V
enture A/c
Books of Y
Dr. 52,500
To X A/c 52,500
(Being goods supplied
Joint V
enture A/c
To BankA/c
and expenses incurred)
Dr. 6,500
6,500
(Being expenses incurred
Bank
by Y)
Dr. 30,000
To Joint V
enture A/c
(Being the receipt of sale proceeds)
30,000
Drawing A/c
To Joint V
enture A/c
Dr. 10,000
10,000
29
30. X Dr.
A/c
11,000
To Joint V
enture 11,000
hand by X)
(Being the taking
X
Profit and Loss
over the balance stock in
Dr.
Dr.
A/c
equal
Dr.
4,000
4,000
A/c
To Joint V
enture 8,000
(For sharing of
X
To Bank
loss in ratio)
37,500
37,500
(Being the draft remitted X)
30
31. Joint V
enture Account
59,000
Dr. Particulars Amount Particulars Amount Cr.
To X(Goods Supplied) 50,000 By Bank (Sale ) 30,000
To X (expenses) 2,500 By Drawings of goods 10,000
To Bank (expenses) 6,500 By (Balance goods taken by X)
11,000
By X (loss) 4,000
By Profit and Loss A/c 4,000 8,000
59,000 (Loss)
31
32. X’s Account
Dr. Particulars Amount Particulars Amount Cr.
To Joint V
enture (Sale) 11,000 By Joint V
enture 52,500
(Goods and Expenses)
To Joint V
enture
(Loss)
A/c 4,000
To Bank 37,500
52,500 52,500
32
33. 2. Memorandum Joint Venture Account Method
In the method discussed above each co-
venturer records all transactions relating to
the joint venture in the Joint V
entureAccount
opened in his books. But, under the
Memorandum Joint V
entureAccount Method
each co-venturer will record only those
transactions relating to the joint venture
which are directly concerned with him and
not those of others.
33
34. Illustration - 2
Aand B entered into a Joint venture involving the buying and
selling of old railway material with an agreement to share profit
or loss equally. (The amount is in $. Hundreds). The cost of the
material purchased was $.30,000 which was paid by A.
i) Apaid
$260 for
B paid $.
expenses
$200 for carriage, $600 for commission on sales and
travelling expenses
80 for travelling expenses and $.120 for sundry
ii)
iii) Sales made by A amounted to $. 21,400 less allowance for
faulty goods $. 400 and
Sales made by B were $. 15,000.
iv)
34
35. The remaining goods were retained byAand B for
their private use and these were charged to them as $.
1600 and $. 2400 respectively. Awas credited with
sum of $. 300 to cover the cost for warehousing and
insurance. Prepare the ledger accounts in the books
of both the parties and also the memorandum joint
venture account..
35
36. Memorandum Joint V
enture Account
Dr. Particulars Amount Particulars Amount Cr.
To Materials
To carriage
To Commission
To Travelling (260+80)
To Sundry expenses
30,000
200
600
340
120
300
To Warehousing
To Profit
A:
B :
expenses
4220
4220 8,440
40,000 40,000
36
Sales ( 21000+1500) 36000
By stock taken by A 1600
By stock taken by B 2400
37. X’s Account
In the books of A
Joint V
enture with B
Dr. Particulars Amount Particulars Amount Cr.
To
To
Bank (material) 30,000 By
By
Bank (sales)
Stock taken
21,000
1,600
Bank
Carriage
Commission
Travelling exp.
Warehousing
To Profit & Loss
200
600
260
300
A/c
By Balance c/d 12,980
1,360
4,220
35,580
12,980
35,580
To Balance b/d
37
38. X’s Account
In the books of B
Joint V
enture with A
Dr. Particulars Amount Particulars Amount Cr.
To Bank
Travelling Exp.
Sundry Exp.
By
By
Bank (Sales) 15,000
2,400
80
120
Stock taken
200
To Profit & Loss A/c 4,220
To Balance c/d 12,980
17,400 17,400
38
39. Sometimes the co-venturers invest money in Joint
venture business and receive back the amounts on
different dates. It is quite usual for them to agree to
calculate interest at a certain rate. Each co-venturers
is entitled to receive interest on the amounts invested
by him and pay interest on the amounts received by
him. Only net interest receivable from or payable to
the conventurer is recorded in the joint venture
account. Thus, the net amount of interest is also
taken into amount before ascertaining the profit or
loss on joint venture.
39
40. 3. Separate Books
Recording of transactions is done not in books
of parties but in a separate set of books. Co-
venturer first contributes to a common bank
account
through
opened.
and then all payments are made
it. Accounts of parties are also
Profit or Loss on Joint V
enture is
transferred to the respective partner's
accounts in due ratios. Finally, the books are
closed with the close of the venture..
40
41. Three main accounts opened
are:
under separate set of accounts
1.
2.
3.
Joint V
enture Account
Joint Bank Account, and
Personal Capital Accounts of Joint V
enturers.
The following entries will be passed under this system
1) When cash is invested by Joint V
enturer
Joint Bank A/c Dr.
To Capital Accounts of Joint V
enturers.
(Being cash invested by Joint V
enturers and deposited
the Bank)
into
41
42. 2. When purchases are made for joint venture
bankA/c
out of
Joint V
enture A/c Dr.
To Joint BankA/c
(Being Purchase made for Joint V
enture)
3) When expenses are incurred for joint venture out of
BankA/c
Joint V
enture A/c Dr.
To Joint BankA/c
(Being expenses incurred for Joint V
enture Account)
42
43. 4. When sales are made
Joint BankA/c
To Sales
(Being sales made and receipts
Dr.
from sales deposited into Bank)
5) When some products are left unsold and are
away by Joint V
enturers
taken
Capital accounts of Joint V
enturer A/c
To Joint V
enture A/c
Dr.
(Being unsold stock taken by Joint V
enturers)
43
44. 6 (a). For Profit on Joint V
enture account
Joint V
enture A/c Dr.
To capital accounts of Joint V
enturers
(Being profit earned on Joint V
enturers)
A/c
6 (b). The reverse entry will be passed in cases of
losses on Joint V
enture.
44
