CHAPTER 3

CHAPTER 3
Joint Venture
1. What is joint venture?

It is a contractual arrangement whereby two or

more parties undertake an economic activity 4. What are the two general methods of
which is subject to joint control. accounting for joint venture?

2. What are the types of joint venture? Separate records No Separate records
Investment in Joint Venture Joint Venture
Jointly Jointly Jointly
capital mdse. mdse.
controlled controlled controlled Original and
withdrawals Contribution Withdrawals
operations assets entities additional
from joint
Involves the Venturers Involves the investment purchases mdse. returns
venture
use of the control establishment
services freight-in purchase ret.
assets and jointly an of a company,
rendered to the share in And allow.
other asset partnership or
venture on a joint
resources other entity in Sales return
compensatory venture purchase
than the which each and
basis losses discounts
establishmen venture has allowances
t of an entity interest.
share in joint sales
which is cash sales
venture profits discounts
separate Venturer settlement
expenses other income
from the reports his
venturers interest using
themselves. Proportionate 5. How to determine the cash settlement to be
Consolidation made to venturers?
or Equity
Method. Investments.............................................Pxx
Add:Share in venture gain.......................Pxx
Total.........................................................Pxx
3. Distinguish between Proportionate Less:Withdrawals.....................................Pxx
Consolidation and Equity Method. Cash settlement.......................................Pxx

Proportionate consolidation
The Statement of Financial
Position of venture includes
its share of the net assets of
the joint venture and the
income statement includes
its share of the income and
expenses of the joint
venture.
Equity method
Investment in Joint
Venture account is
debited for the initial
and additional
investments and for
the venturer’s share in
profit.
REVIEW PROBLEMS
Sha, Jo and Le, agree to sell yellow t-shirts and visors on
February 24 and 25.
Sha constructed a stand in front of Le’s house at a cost
of P200 chargeable to operations. Any profit from the
venture will be distributed first by the payment of P50
to Le to cover the cost cleaning his lot after the venture,
then by allowing a 40% commission on individual sales
and finally , by dividing the remainder between Sha and
Jo in the ratio of 3:1. All purchases will be out-of-pocket
and all sales activities will be the responsibility of each
individual.

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 CHAPTER 3

venturer’s investment in entity Tina is P290,000

On February 24, Sha purchased a merchandise worth (calculation: fair value P293,000 less costs to sell of
P5,000 using P1,000 handed to him by B and P4,000 of P3,000. There is no published price quotation for entity
his own money. Le paid P100 for a permit to operate Tina.
the concession.

Sha, Jo and Le made sales at a mark-up of 100% on cost, 4. Using cost model, at December 31,2014,
as follows: Sha – P3,400; Jo – P5,200; and, Le – P1,200. entities A and B must each report their
C paid P180 for their personal meals, which is to be investment in entity Tina amounted to:
shared equally by all of them. a. 290,000
b. 293,000
The stand is no longer useful. The balance of the c. 297,000
inventory was taken by Sha at 50% of cost, as agreed to d. 301,000
by Jo and Le.
5. Using the same information in 3-a, entities Tin
and Na must each recognize dividend
1. Joint venture profit income for the year 2014 amounted to;
a. 4,650 a. 30,000
b. 4,550 b. 45,000
c. 4,750 c. 75,000
d. 4,450 d. 120,000

2. Share of Sha in the joint venture profit 6. Using the same information in 3-a, each
a. 1795 venturer recognize impairment loss for 2014
b. 3375 amounted to:
c. 1870 a. Nil or zero
d. 1845
b. 3,000
3. The final cash settlement to the venturers c. 11,000
would be: d. 10,000
Sha Jo Le
a. P5,340 (P4,260) (P1,080)
b. P2,485 (P2,035) (P450)
c. P1,870(P2250) (P670) During the year 2014, Neila has been the manager of a
joint venture with Ferika and Lowi.It was agreed that on
d. P1,930(P2,400) (P470)
the completion of the venture, Neila is to receive a fee
of 10% of the venture profit after the deduction of the
fee as expense. The venture is terminated on October
On March 1, 2014, entities Tin and Na each acquired 31, 2014. On this date Neila’s trial balance contains the
30% of the ordinary shares that carry voting rights at a following:
general meeting of shareholders of entity Tina for
P300,000. In acquiring those shares , entity Tin incurred Joint venture P12,000
transaction costs of P1,000. Entities Tin and Na cash
immediately agreed to share control over entity Tina. Joint venture 13,000
Ferika, Capital 14,500
On December 31,2014, entity Tina declared a dividend Lowi, Capital 6,500
of P100,000 for the year 2013. Entity Tina reported a
profit of P80,000 for the year ended December 31,2014.
On December 31,2014, the recoverable amount of each
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 CHAPTER 3

The balance of the joint venture assets on hand is sold 10. Under the proportionate consolidation, how
by Neila for P3,500. Profits must be divided equally after much is the total assets of Karen co. on
the fee of Neila. December 31, 2013?
a. 182,000
b. 155,000
7. The fee of Neila is c. 222,000
a. 1,500 c. 1,300 d. 256,000
b. 1,650 d. 1,182
11. Using the data above, the total liabilities to be
8. Share of Ferika in the JV profit; reported by Mara co. under the equity method
a. 5,000 c. 4,333 on Dec. 31, 2013 is :
b. 5,500 d. 3,500 a. 76,000
b. 103,000
9. The amount received by Lowi from settlement c. 136,000
is: d. 130,000
a. P6,500 c. P5,400
b. P11,500 d. (P7,600) 12. Using the data above, assuming Karen company
used the proportionate consolidation, how
much is the investment income to bereported
in its Dec.31,2013 consolidated financial
On January 2, 2014, Karen Company and Mara Company statement?
formed the Sexy Company, a merchandising joint a. 5,000
venture. Each invested P8,000 for a 50% interest in the b. -0-
joint venture. c. 1,000
Condensed financial statements for Karen Company, d. 2,000
Mara Company and for the joint venture, Sexy Company
are presented below:

Karen Co. Mara Co. Sexy Co. Norms and Max formed a joint venture on January 3,
2013 to buy and sell certain merchandise. Their capital
Income statement: contributions and profit and loss ratios are presented
Sales P120,000 P80,000 P40,000 below:
Investment income 5,0005,000_--___ Total
125,000 85,00040,000 Contributions Profit and
Cost and expenses 60,000_48,000 30,000 Cash Merchandise Loss ratio
Net income 65,00037,00010,000
Norms P5,000 P8,000 50%
Balance sheet: Max -- 6,000 50%
Assets P142,000P114,000 P80,000
Invstmnt in Sexy Co.13,000 13,000 _--____ A summary of the JV activities during 2013 is as follows:
Total assets 155,000127,00080,000
Purchases of merchandise by Max P4,000
Liabilities P84,000P76,000 P54,000 Expenses paid by Max:
Capital stock 48,000 40,000 -- Taxes and licenses 400
Retained earnings 23,000 11,000 -- Freight on merchandise
Venturer’s Capital -- -- 26,000 contributed by Norms 300
Total Liab.and cap.P155,000P127,000 P80,000 Delivery expense on merchandise sold 200
Sales ( all of the merchandise contributed and
purchased by Max and one-half of
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 CHAPTER 3

those contributed by Max)-Selling price 14,000

The venture is terminated on Dec. 31,2014.

13. The amount of merchandise on hand?

a. 4150 c. 8000 1. B 11. A
b. 4000 d.8300 2. A 12. B
3. B 13. A
14. What is the joint venture profit (loss) on Dec. 4. A 14. B
31,2014? 5. A 15. C
a. 4900 6. C
b. (750) 7. A
c. 14400 8. A
d. 9400 9. B
10. A
15. In the final settlement assuming the used of
equity method, how much would Norms receive
assuming Norms took unsold merchandise at
cost?
a. P13,000 1. Joint venture
b. P12,625 (200)
c. P8,475 (5000)
d. P8,000 (100)
3400
5200
50
1200
4550

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 CHAPTER 3

7. JV before profit...............13,000
Sale of asset on hand......3,500
Profit...............................16,500
2.
SHA JO LE TOTAL
Services
50 50
paid to Le
8. Total profit before fee ...............16,500
40%
commissio 1360 2080 480 3920 Fee of Neila............................... ( 1,500)
n on sales Profit after the fee of Neila.........15,000
Bal. to Sha ÷3__
435 145 - 580
and Jo 5,000
1795 2225 530 4550
3. 9. Lowi, capital before share of profit..........6,500
Share in profit .........................................5,000
Cash settlement……………….....................11,500
Sha
200
Jo
4000
5200 1000 10. Under theproportionate consolidation, the
3400
60 2225 statement of financial position of the venturers
60 1795
Le
50 2035 includes its share of the net assets of the joint
1200 100
2485 venture.
120
530 Total assets of Rash 142,000
450 share in JV assets 40,000Total assets
of RashP182,000
4. On December 31,2014, entities Tin and Na
must each report their investment I entity Tina at
P290,000 (i. e., cost less accumulated
impairment).
11. Under equity method, each venture records
only those transactions affecting his
investment to which he is a party. Since the
5. 30% x P100,000 entity Tina’s profit for the liabilities of Shar is a separate transaction not
year._P30,000. affecting his investment in JV, the liabilities to
be reported is only 76,000.

6. (P301,000-P290,000) On December 31, 2014

the carrying amount is reduced to P290,000 12. Under proportionate consolidation, investment
and it’s carrying amount before impairment is income account should not appear in the
P301,000. consolidated financial position.

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 CHAPTER 3

13. Mdse. Contributed by Norms……………….8000

Freight on mdse. Contributed norms.........300
8,300
X 50%
4,150

14. Joint Venture

6000 14,000
4000
15. 8000
Norms’ capital
400
300 5000
8000
200 4,150
4150
375
750
8475