Chapter 4: Joint Venture What is Joint Venture?

Joint Venture is a specific partnership, between two or more persons, without the use of firm name, for a limited purpose. Here, two or more persons agree to undertake a particular venture and share the profit or loss thereof in agreed ratio. What are the persons so involved called? The persons who have so agreed to undertake a joint venture are known as Joint Venturers or Co-Venturers. Such limited partnership automatically expires on the completion of the venture for which it was formed. The advantages of Joint Venture Business are: Why Joint Venture? Unlike Partnership, Joint Venture has less legal formalities. The accounting procedure of Joint Venture in not complex. Joint Venture Partnership It is limited to a specific venture. It is not limited to a specific venture. There is no specific Statute governing Joint Venture. It is governed by Indian Partnership Act, 1932. There is no need for name. A Partnership firm always has a name. The persons carrying on business are called Co-The persons carrying on business are called Venturers. Partners. : At least 2 persons are required in both and Business is carried on for profit in both. Similarities . Joint Venture Consignment The relationship between Co-Venturers is that of The relationship of consignor and consignee is that partners. of principal and agent. In Joint Venture, there may be two or more persons.In Consignment, there are only two. Profit & losses are shared by Co-Venturers in an There is no profit sharing in consignment; it is borne agreed ratio. by the Consignor only. There are four methods of recording. There is only one method of recording. Cash Basis of Accounting is followed in Joint Venture. Methods of Recording Joint Venture Transactions Separate Set of Books Method (MethodI) (When the size of venture is large, the duration is long and number of transactions are numerous.) All Transactions are recorded in books of all Co-Venturers. (II) Same Set of Books Method (When the size of venture is small, the coventurers are staying far off and number of transactions are not numerous.)

All Transactions are recorded Each Co-Venturer records only by one of the Co-Venturers. his transactions.(IV) (III)

Write answer of these questions in your copy: 1. Explain the term Memorandum Joint Venture Account. [ISC 1993] 2. How does joint venture differ from partnership? [ISC 1996] 3. What is the purpose of opening a joint bank account for joint venture? [ISC 1997] 4. State two differences between consignment and joint venture. [ISC 1999] 5. Name the basis of accounting followed in joint venture. [ISC 2000] 6. Give two similarities between joint venture and partnership. [ISC 1999, 01] 7. What is the purpose of making a joint venture account? Does it differ from the purpose of making a consignment account? [ISC 2001] 8. State two advantages of joint venture business. [ISC 2002] 9. Why are unsold goods disposed off in joint venture? [ISC 2004] 10. Under what circumstances no separate set of books are kept in Joint Venture? [ISC 2005] 11. Why is the word memorandum affixed to Memorandum Joint Venture Account?

Method I: Recording in a Separate Set of Books Under this method, generally the following accounts are maintained: 1. Joint Bank Account which is personal in nature, is used to record Cash and Bank Transactions 2. Co-Venturers Accounts which are personal in nature, are used to record their dealings with the Joint Business and to ascertain the amount due to/ from them. 3. Joint Venture Account which is nominal in nature, is used to calculate profit or loss on joint venture. Journal Entries in the books of Joint Venture 1. On Deposit of Capital brought in by the Co-Venturer into Bank: Joint Bank A/c Dr. To Co-Venturers A/c 2. On Purchase of Goods Joint Venture A/c Dr. To Joint Bank / Creditors / Co-Venturers A/c 3. On Making Payment to Creditors Creditors A/c Dr. [Total Amount] To Joint Bank A/c [Payment Made] To Joint Venture [Discount Received] 4. On Supply of Goods out of Co-Venturers Stock: Joint Venture A/c Dr. To Co-Venturers A/c 5. On Payment of Expenses: Joint Venture A/c Dr. To Joint Bank / Co-Venturers A/c 6. On Sale of Goods: Joint Bank / Debtors / Co-Venturers A/c Dr. To Joint Venture A/c 7. On receiving Payment from a Customer: Joint Bank A/c Dr. [Payment Received] Joint Venture A/c Dr. [Discount Allowed Bad Debts] To Debtors A/c [Total Amount] *: 8. On taking away of Unsold Stock by Co-Venturer Co-Venturers A/c Dr. To Joint Venture A/c 9. When any Co-Venturer is entitled to some Commission /Salary: Joint Venture A/c Dr. To Co-Venturers A/c 10. For Closing Joint Venture A/c by recording Profit or Loss: (a) In Case of Profit: (b) In Case of Loss: Joint Venture A/c Dr. Co-Venturers A/c Dr. [In Agreed Ratio] To Co-Venturers A/c [In Agreed Ratio] To Joint Venture A/c 11. For Closing Co-Venturers A/c by making entry for final settlement: (a) In case of a Debit Balance (b) In case of Credit Balance: Joint BankA/c Dr. Co-Venturers A/c Dr. To Co-Venturers A/c To Joint Bank A/c *Since business of Joint Venture is of temporary nature, it is necessary to dispose off the unsold stock some way. So the unsold stock can be taken over by one or more of the co-venturers or it can be sold off at a discount. Treatment of Abnormal Loss: No treatment is necessary for abnormal loss. However if the goods were insured, the amount of insurance claim would be credited to Joint Venture A/c and Debited to Joint Bank A/c.

Method II: Recording of all transactions by all Co-Venturers: Under this method, generally each co-venturer will maintain the following accounts: 1. Joint Venture Account which is nominal in nature, is used to calculate profit or loss on joint venture. 2. Personal Accounts of the other co-venturers to record the transactions, effected by other co-venturers, as to determine the amount receivable from or payable to him. so : Suppose A and B are co-venturers. Now let us see how the transactions Scheme of Journal Entries would be recorded in their books: In the books of A In the books of B 1. (a) On receipt of amount or Bills receivable from B to A: Bank / Bills Receivable A/c Dr. A A/c Dr. To B A/c To Bank /Bills Payable A/c 1. (b) On Discounting the Bills Receivable by A: Bank A/c Dr. [Net Proceeds] Joint Venture A/c Dr. [Discounting Charge] Joint Venture A/c Dr. [Discounting Charge] To A A/c To Bills Receivable A/c 2. On Purchase of Goods for Joint Venture by A: Joint Venture A/c Dr. Joint Venture A/c Dr. To Bank / Creditors A/c To A A/c 3. On Making Payment to Creditors by A: Creditors A/c Dr. A A/c Dr. To Joint Venture A/c [Discount Received] To Joint Venture A/c [Discount Received] To Bank A/c [Payment made] 4. On Supply of Goods out of Own Stock by B: Joint Venture A/c Dr. Joint Venture A/c Dr. To B A/c To Purchases A/c (If supplies at cost price.) To Sales A/c (If supplies at sale price.) 5. On Payment of Expenses by B: Joint Venture A/c Dr. Joint Venture A/c Dr. To B A/c To Bank A/c 6. On Sale of Goods by B B A/c Dr. Bank /Debtors A/c To Joint Venture A/c To Joint Venture A/c 7. On receiving Payment from a customer by B: Joint Venture A/c Dr. [Discount Allowed] Bank A/c Dr [Payment Received] To B A/c Joint Venture A/c Dr. [Discount Allowed] To Debtor A/c 8. On taking away of Unsold Stock by A: Purchase /Assets A/c Dr. A A/c Dr. To Joint Venture A/c To Joint Venture A/c 9. When B is entitled to some Commission /Salary: Joint Venture A/c Dr. Joint Venture A/c Dr. To B A/c To Commission /Salary A/c 10. For Closing Joint Venture A/c by recording Profit or Loss: (a) In Case of Profit: (a) In Case of Profit: Joint Venture A/c Dr. Joint Venture A/c Dr. To Profit & Loss A/c [Own Share] To Profit & Loss A/c [Own Share] To B A/c [Bs Share] To A A/c [As Share] (b) In Case of Loss: (b) In Case of Loss: Profit & Loss A/c Dr. [Own Share] Profit & Loss A/c Dr. [Own Share] B A/c Dr. [Bs Share] A A/c Dr. [As Share] To Joint Venture A/c To Joint Venture A/c 11. For Closing Co-Venturers A/c by making entry for final settlement (say A pays to B): B A/c Dr. Bank / Bills Receivable A/c Dr. To Bank /Bills Payable A/c To A A/c

Method III: Recording of all transactions by one of the Co-Venturers. There is no difference in Method II & Method III. Method II was like passing entries in books of A & B and Method III is like passing entries in the books of A or B only, the entries being exactly same. Method IV:Memorandum Joint Venture Account Method. Under this method, each co-venturer records those transactions with which he is concerned. He does not record any transactions of his co-venturers. Generally the following accounts are maintained: 1. Joint Venture with ____ A/c, which is personal account in nature, records the transaction of a 2. Memorandum Joint Venture Account: As soon as the venture comes to end, profit or loss is to be coventurer. So all the information is then pooled into a newly opened account named Memorandum Joint Venture shared. Account. Since this account is not a part and parcel of double entry system, therefore to distinguish this account from other ledger accounts, the word memorandum is prefixed. It is nearly the combination of personal accounts, i.e. debit side of Joint Venture with other co-venturers is posted to the debit side of Memorandum Joint Venture Account and vice-versa. Thus profit or loss is determined. Journal Entries in the books of Joint Venture 1.(a) On receipt of amount or Bills 1 (b) On discounting Bills Receivable: Bank A/c Dr. [Net Proceeds] receivable from other co-venturer: Bank / Bills Receivable A/c Dr. Joint Venture with _____ A/cDr. [Discount] To Joint Venture with _____ A/c To Bills Receivable A/c 2. On Purchase of Goods Joint Venture with _____ A/c Dr. To Bank / Creditors A/c 3. On Making Payment to Creditors Creditors A/c Dr. [Total Amount] To Bank A/c [Payment Made] To Joint Venture with _____ A/c [Discount Received] 4. On Supply of Goods out of own stock: Joint Venture with _____ A/c Dr. To Purchases A/c (If supplies at cost price.) To Sales A/c (If supplies at sale price.) 5. On Payment of Expenses: Joint Venture with _____ A/c Dr. To Joint Bank A/c 6. On Sale of Goods: Joint Bank / Debtors A/c Dr. To Joint Venture with _____ A/c 7. On receiving Payment from a Customer: Bank A/c Dr. [Payment Received] Joint Venture with _____ A/c Dr. [Discount Allowed Bad Debts] To Debtors A/c [Total Amount] : 8. On taking away of Unsold Stock by Co-Venturer Purchase /Assets A/c Dr. To Joint Venture with _____ A/c 9. When any Co-Venturer is entitled to some Commission /Salary: Joint Venture with _____ A/c Dr. To Commission /Salary A/c 10. For Closing Joint Venture with _____ A/c by recording share of Profit or Loss: (a) In Case of Profit: (b) In Case of Loss Joint Venture with _____ A/c Dr. Profit & Loss A/c A/c Dr. To Profit & Loss A/c A/c To Joint Venture with _____ A/c 11. For Closing Co-Venturers A/c by making entry for final settlement: (a) In case of a Debit Balance (b) In case of Credit Balance: BankA/c Dr. Joint Venture with _____ A/c A/c Dr. To Joint Venture with _____ A/c A/c To Bank A/c