When two or more persons join together for a specific business, it is called Joint Venture. Joint Venture is a temporary partnership for some specific purpose. The partners in this case are called ‘Co-venturers’. The relationship between co-venturers interse is similar to partners or joint owners. Such partnership business comes to an end when the venture is completed.
Joint Ventures are normally for short duration, temporary partnership for some specific purpose, like construction / reconstruction of a Building, sale of consignment, Underwriting a particular issue of shares / debentures, etc, sharing profit / loss in equal or in agreed ratio.
Characteristics of Joint Venture
1. Two or more persons join together for a single venture, share profits and losses in agreed manner (in absence of any agreement, profit or loss shared equally). 2. Interest on capital, salary to co-venturers may be paid as per agreement (in absence of any agreement, no interest or salary is payable). 3. Going concern concept may not be applicable in some cases. 4. Joint Venture business dissolves in completion of venture.
Joint Venture vs Partnership
|Scope||Joint Venture is a terminable venture.||Partnership is a going concern.|
|Persons||The persons carrying on Joint Venture business are called co-venturers.||The persons carrying on Partnership business are called partners.|
|Profit / loss ascertainment||The profits or losses of Joint Venture are ascertained at the end of specific venture or on interim annual basis.||The profits or losses of Partnership are ascertained on an annual basis.|
|Legal Status||No specific act is applicable for Joint Venture||Partnership is Governed by Indian Partnership Act, 1932.|
|Books of Accounts||Separate set of books for Joint Venture may not be maintained. Transactions may be recorded in Co-venturer’s own books||Separate set of books have to be maintained for Partnership business|
|Name||Joint Venture may not use any firm or organization name.||Partnership business must have a distinct name.|
A Minor cannot be a co-venturer while a Minor can be admitted to the benefits of Partnership. The Accounting of Joint Venture is done on Liquidation Basis, while Accounting of Partnership is done on going concern basis. In joint venture, co-venturer are often involved in competing business, while in partnership, the Partners, normally do not involve in competing business.
1A Method of Maintenance of Joint Venture Account
The process of maintenance of Joint Venture Account is described in following Table
|Joint Ventures Account|
|Separate Sets of Books of Accounts||No Separate Set of Books of Accounts|
|Joint Bank A/c||Joint Venture A/c||Co-venturers’ A/c||Co Venturer keeps all records||Co Venturer keeps own transaction records|
|Joint Venture A/c||Co-venturers’ A/c||Memorandum Jt. Venture A/c||Jt.Venture with co-venturer A/c|
We will describe the process of Accounting entries for each of these cases
Joint Venture Accounts maintaining Separate Books
- Joint Bank Account: The Co-venturers open a separate Bank Account called Joint Bank Account. All receipts and payments, like capital contribution, expenses, sales or collections from transactions are done through this account.
- Joint Venture Account: Joint Venture account is a type of Trading and Profit & Loss Account prepared for computation of joint venture profit. This account is debited for all venture expenses and is credited for all sales or collections.
- Co-venturers’ Account: Venturers’ contributions of cash, goods or venture expenditure and direct payment received are entered here.
|1.For initial contribution by the co-venturers to open Joint Bank Account. Joint Bank A/c Dr Dr. To Co-venturers’ A/c||2.For expenses paid out of Joint Bank Account. Joint Venture A/c Dr Dr. To Joint Bank A/c||3. For goods supplied by venturers or direct payment made by venturers Joint Venture A/c. Dr. Dr. To Co-ventures’ A/c’s|
|4.For cash purchase of goods Joint Venture A/c Dr Dr. To Joint Bank A/c||5. For purchase of goods on credit Joint Venture A/c Dr Dr. To Suppliers A/c||6. For goods returned to supplier Suppliers A/c Dr Dr. To Joint Venture A/c|
|7. For payment to suppliers or creditors Supplier A/c Dr Dr. To Joint Bank A/c||8. For cash sale or payment received Joint Bank A/c Dr. To Joint Venture A/c||9. For credit sale Debtors Account Dr. To Joint Venture A/c|
|10.For goods returned by debtors Joint Venture A/c Dr Dr. To Debtors A/c||11.For collection from debtors Joint Bank A/c Dr Dr. To Debtors A/c||12. For sale or payment received directly by the venturers and retained by them Co-ventures’ A/c’s Dr Dr. To Joint Venture A/c|
|13. For commission, interest payable to co-venturers Joint Venture A/c Dr. To Co-ventures’ A/c’s||14.For unsold goods taken over by co-venturers Co-ventures’ A/c’s Dr. To Joint Venture A/c||16. If any loan is taken Joint Bank A/c Dr. To Loan A/c In case of repayment of the loan, the above entry will be reversed|
|16.For profit on joint venture Joint Venture A/c’s Dr Dr. To Co-ventures’ A/c’s||17. For Loss on Joint Venture Co-ventures’ A/c’s Dr Dr. To Joint Venture A/c.||For closing the Joint Bank A/c Co-ventures’ A/c’s Dr Dr. To Joint Bank A/c [If anyCo-venturers’ Accounts shows the debit balance, he will bring the money in venture, and the enry would be reverse]|
Closing of books: If there are any balances in loan, supplier, debtor account in joint venture, they will be closed at first and the balance will be transferred to Joint Venture Account. The Joint Venture Account is closed at first. Then Co-venturers’ Accounts and Joint Bank Account are closed simultaneously
Joint Venture Accounts – Separate Books -Example
X and Y both decided to undertake joint venture and share profits and losses in the ratio of 5:3. X and Y deposited Rs.25,000 and Rs.28,000 respectively in the Bank Account, to be utilized only for purchase of goods. Expenses will be paid by partners personally. X purchased 8 pieces of DVD Player @ Rs.2,000 per player and spent Rs.300 as expenses. Y sold 6 pieces of DVD Player @ Rs.3,000 per player and paid Rs.150 as sales expenses. Y purchased 5 pieces of Home Theatre System @ Rs.3,000 and spent Rs.300 for bringing it to godown. X sold 4 pieces of Home Theatre System for Rs.16,000 and spent Rs.200 as sales expenses. The unsold DVD Player and Home Theatre were taken by X and Y respectively at cost.
Prepare Joint Venture Account, Joint Bank Account and Venturers’ Accounts.
Joint Venture A/c
|To Joint Bank A/c||By Joint Bank A/c|
|– (Purchased 8 pieces of DVD Player @ Rs.2,000 per player)||16,000||(Sold 6 pieces of DVD Player @ Rs.3,000 per player)||18,000|
|– (Purchased 5 pieces of Home Theatre System @ Rs.3,000)||15,000||(Sold 4 pieces of Home Theatre System @ Rs.4,000)||16,000|
|To Co-venturers’ A/c||By Co-venturers A/c|
|– (Expenses made by Y for purchase)||300||X-2Pcs DVD@2000=4000 Proportioned Purchase Expenses (Rs.300 x 2/8)=75||4,075|
|– (Expenses made by Y for sales)||150||Y – 1 pc’s Home Theatre@ Rs.3,000 = 3,000|
|– (Expenses made by X for sales)||200||Proportioned Purchase Expenses (Rs.300 x 1/5) =60||3,060|
|To Co-venturers’ A/c (Balancing figure Rs.9,185 Profit), Apportioned to:-|
|X (Rs.9,185 x 5/8)||5,741|
|Y (Rs.9,185 x 3/8)||3,444|
Joint Bank A/c
|To Co-venturers’ A/c||By Joint venture A/c|
|(X capital)||25,000||(Purchased 8 pieces of DVD Player @ Rs.2,000 per player)||16,000|
|( Y capital)||28,000||(Purchased 5 pieces of Home Theatre System @ Rs.3,000)||15,000|
|To Joint venture A/c||By Co-venturers’ A/c (Amt.withdrawn)||56,000|
|(Sold 6 pieces of DVD Player @ Rs.3,000 per player)||18,000||X : Y||27,166 28,834|
|(Sold 4 pieces of Home Theatre System @ Rs.4,000)||16,000|
|To Joint Venture A/c (unsold stock taken over)||4,075||3,060||By Joint Bank A/c|
|To Joint Bank A/c||27,166||28,834||(Capital introduced)||25,000||28,000|
|(Balancing figure, amount withdrawn)|
|By Joint Venture A/c|
|(Purchase Expenses by X & Y )||300||300|
|(Sales Expenses by X & Y)||200||150|
|By Joint Venture A/c|
|X (9,185 x 5/8)||5,741|
|Y (9,185 x 3/8)||3,444|
It is assumed that entire sales proceeds have been deposited in the Bank.
Joint Venture Accounts – Separate Books – Example
A and B entered into a joint venture for sale of specified goods paying Rs.60,000 and Rs.40,000 respectively in a Joint Bank Account- sharing profits and losses in the ratio of 3:5. It was agreed that Joint Bank Account is to be used for purchases and sales and each venturer is to meet his joint venture expenses out of private funds. Each venturer is to charge a commission @ 5% on sales made by him. The transactions were as follows:
A purchased goods costing Rs.40,000 and expenses in connection thereof amounted to Rs.6,000. He sold 90% of these goods at 30% over the cost price and selling expenses amounted to Rs.2,500. B purchased goods costing Rs.50,000 and expenses in connection thereof amounted to Rs.6,500. He sold 80% of these goods at 25% over the cost price and selling expenses amounted Rs.3,000. 1/5th of the remaining goods purchased by A were destroyed by fire and the insurance company paid a claim for Rs.2,000. Write up Joint Venture Account, Joint Bank Account and Venturers’ Accounts.
Computation of Sales
Sales made by A: Rs.
-Cost of goods sold [90% of Rs.(40,000 + 6,000)] 41,400
-Add: profits on goods( 30% on 41,400) 12,420
Sales made by B:
-Cost of goods sold [80% of Rs.(50,000 + 6,500)] 45,200
-Add: profits on goods( 25% on 45,200) 11,300
Computation of Closing Stock
90% of goods were sold by A. Therefore, 10% goods remain as unsold stock. Again 1/5th of the 10% was destroyed by fire. It will be subtracted from the stock in the hands of A.
80% of goods were sold by B. Therefore, 20% goods remain as unsold stock. The unsold stock will remain in Joint venture.
|10% of Rs.(40,000 + 6,000)||4,600|
|Less: goods destroyed by fire (1/5th of 4,600)||920|
|20% of Rs.( 50,000 + 6,500)||11,300|
|Total Closing stock in Joint Venture (3,680 + 11,300)||14,980|
Joint Venture Account
|To Joint Bank A/c:||By Joint Bank A/c|
|– Goods purchase A: 40,000, B: 50000||90,000||Sales A : 53820, Sales B : 56500||1,10,320|
|To Co-Venturers’ A/cs:|
|– Purchase Exp. A :6000, B:6500||12,500||By Joint Bank A/c (Ins Claim)||2,000|
|– Sales Expenses : A-2500, B:3000||5,500|
|To Co-Venturers’ A/cs (Commn)||By Closing Stock||14,980|
|A – (5% on Rs.53,820=2691|
|B – (5% on Rs.56,500) = 2825||5,516|
|To Co-Venturers’ A/c ( Profit share)|
|A – (3/8th of Rs.13,784): 5169|
|B – (5/8th of Rs.13,784) : 8615||13,784|
Joint Bank Account
|To C-Venturers’ A/cs||By Joint Venture A/c (purchase)||90,000|
|A :60000||By Balance c/d||1,22,320|
|B : 40000||1,00,000|
|To Joint Venture A/c|
|To Joint Venture A/c|
Co- Venturers’ Accounts
|To Balance c/d||76,360||60,940||By Joint Bank A/c (capital invested)||60,000||40,000|
|By Joint Venture A/c (expenses)||8,500||9,500|
|By Joint Venture A/c (Commission)||2,691||2,825|
|By Joint Venture A/c (Profit)||5,169||8,615|
As there is no mention about the final settlement, the value of closing stock and balances on Co- Venturers’ Accounts and Joint Bank Account will be carried forward next year.
In case of stock destroyed, only insurance claim received is taken as income in the Joint Venture and Joint Bank Account.
Joint Venture Accounts – No Separate Books
When no separate set of books of account are maintained for joint venture, then each co-venturer may maintain joint venture accounts, either in respect of all transactions of the joint venture, or in respect of his own transactions only
Co-venturer maintaining records of all transactions:
Under this method, every co-venturer maintains two accounts in his books of account viz. Joint Venture Account, and other Co- venturer Account.
Joint Venture Account is a nominal account and treated as Profit & Loss Account of the venturer in whose books of account the Joint Venture Account, and other Co- venturer Account are maintained. Own shares of profit or loss are transferred to Profit & Loss Account and the other Co- venturer’s share is transferred to his personal account.
Co-venturer maintaining records of their own transactions only
Sometimes the venturers find it unnecessary to keep full record of venture transactions. Rather they keep record of own transactions only. In such case, ‘Joint Venture with Co-venturer A/c’ is opened. All expenses, profit earned and materials sent should be debited and receipt from joint venture, loss should be credited.
Each co-venturer maintains 1. Memorandum Joint Venture Account & 2. Joint Venture with other Co-venturer Account.
Journal entries are passed by the co-venturers in his books of account.
Co-Venturer maintaining all records
Every Co-venturer maintains two accounts in his books of accounts . 1.Joint Venture Account. 2. Other Co- venturer Account
|1.For supply of goods to venture out of own business stock. Joint Venture A/c Dr To Purchase A/c||2.For expenses incurred. Joint Venture A/c Dr To Bank A/c|
|3. Co-venturer supplies goods/ incurs expenses Joint Venture A/c. Dr To Co-venturers’ A/c.||4. Sale of goods. Bank A/c Dr To joint Venture A/c.|
|5. Sale made by the co-venturers Co-venturers’ A/c Dr To Joint Venture A/c.||6. Cash contributed by co-venturers Bank A/c Dr To Co-venturers’ A/c.|
|7.For goods taken over for business Purchase A/c Dr To Joint Venture A/c||8.For goods taken over by co-venturer Co-venturers’ A/c Dr To Joint Venture A/c|
|8a. For venture profit. Joint Venture A/c Dr To Profit or Loss A/c. To Co-venturer A/c. 8b. For venture loss. Profit and Loss A/c Dr Co-venturer A/c To Joint Venture A/c.||9.For settlement of claims. a. When payment is due to co-venturer Co-venturer A/c Dr To Bank A/c. b. When payment is due from co-venturer Bank A/c Dr To Co-venturer A/c. [Account with co-venturer will be settled through appropriate remittance]|
Co-Venturer maintaining all records – Problems
A and B are partners in a joint venture sharing profit and losses in the proportion of 3/5th and 2/5th respectively. A supplied goods of the value of Rs.8,000 and incurs expenses amounting to Rs.400. B supplies goods of the value of Rs.3,900 and his expenses amount to Rs.300. B sells goods on behalf to the joint venture and realizes Rs.32,000, and is entitled to a commission of 2.5% on sales. B settles his account by bank draft.
Show Journal entries and relevant ledger accounts in the books of A.
Accounting Entries in the books of A
|Joint Venture A/c Dr. 8,400 To Purchases A/c 8,000 To Cash A/c. 400 (Goods supplied valued Rs.8,000 and incurring expenses for Rs.400)||Joint Venture A/c Dr. 4,200 To B’s A/c 4,200 (Goods supplied Rs.3,900, expanses Rs.300)|
|B’s A/c Dr. 32,000 To Joint venture A/c 32,000 (Sale proceeds of joint venture goods received by B)||Joint venture A/c. Dr.800 To B’s A/c 800 (2.5 % commission payable to B on joint venture sale i.e. [25% on Rs.32,000])|
|Joint venture A/c Dr. 18,600 To Profit and Loss A/c 11,160 To B’s A/c 7,440 (Profit on joint venture transferred to Profit & Loss A/c (18,600 x 3/5=11600) and B’s A/c (18,600 x 2/5=7440))||Bank A/c Dr. 19,560 To B’s A/c 19,560 (Being the sum due from B received)|
Joint Venture A/c in the books of A
|To Purchases A/c||8,000||By B’s A/c (Sale Proceeds)||32,000|
|To Cash A/c||400|
|To B’s A/c||4,200|
|To B’s A/c (Commission)||800|
|To B’s A/c(B’s Share of Profit)||7,440|
|To Profit & Loss A/c (A’s Share of Profit)||11,160|
B’s Account in the books of A
|To Joint Venture A/c||32,000||By Joint Venture A/c||4,200|
|(Sale proceeds of joint venture received by B)||(Contribution of B for joint venture)|
|By Joint Venture A/c||800|
|By Joint Venture A/c||7,440|
|(Share of Profit)|
|By Bank A/c||19,560|
|(Due balance received from B)|
Co-Venturer maintaining own transactions only
|For supply of material Joint Venture with X A/c Dr To Purchase A/c||For payment of expenses. Joint Venture with X A/c Dr To Bank/Cash A/c|
|For sale on venture. Bank A/c To joint Venture with X A/c||For profit on venture. Joint Venture with X A/c To Profit or Loss A/c.|
|For final payment to co-venturer. Joint Venture with X A/c To Bank A/c.||For final payment made by co-venturer. Bank A/c To Joint Venture with X A/c.|
Memorandum & Co Venturer Account
Memorandum Joint Venture Account : Memorandum Joint Venture account is created by each Co Venturer to know Joint Venture Profit / Loss, when no separate books of accounts are maintained, but each co-venturer keeps records of his own transaction only in the books of Accounts, in respect of the Joint Venture
Memorandum Joint Venture Account is same in books of both the co-venturers, So, only one Memorandum Joint Venture Account is shown to compute venture profit.
Joint Venture with other Co-venturer A/c : ‘Joint Venture with other Co-venturer Account’ is the personal account of the other party. Balance of this account shows the amount due from or due to the other co-venturer.
Ex. A and B entered into a Joint Venture for the purchase and sale of second hand bikes and to share profits and losses in the ratio of 2:3.
A bought 5 bikes for Rs.40,000. A paid tax and insurance amounting to Rs.2,500. A sold these bikes for Rs.68,000, out of which A remitted Rs.10,000 to C, paying the balance into his own bank account.
B bought 3 bikes for Rs.35,000. B paid tax and insurance Rs.900 and repair charges amounting to Rs.1,500. B sold one bike for Rs.15,000, which he deposited into his own bank account.
A then took over other bike at a valuation of Rs.25,000 and the venture was closed.
Prepare the Memorandum Joint Venture Account and the Account of the Joint Venture with B in the books of A.
Memorandum Joint Venture Account
|To A A/c||By A A/c|
|(Purchases)||40,000||(Sales proceeds received by A)||68,000|
|(Tax and Insurance)||2,500||By B A/c|
|To B A/c||(Sales proceeds received by B)||15,000|
|(Purchases)||35,000||By A A/c|
|(Tax and Insurance)||900||(Stock taken over by A)||25,000|
|To Profit (Balance 28,100)|
|A – 2/5th x Rs.28,100||11,240|
|B – 3/5th x Rs.28,100||16,860|
Joint Venture Account with B in the Book’s of A
|To Bank A/c||By Bank A/c.||68,000|
|(Purchases)||40,000||(Sales proceeds received by A)|
|(Tax and Insurance)||2,500||By Bikes A/c||25,000|
|(Remitted to C)||10,000||(Stock taken by A)|
|To Profit and Loss A/c (Profit)||11,240|
|To Bank A/c (bal. fig.)||29,260|
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