Asok Nadhani-Accountancy-Joint Venture

Joint Venture

By Asok Nadhani

18.1 Joint Venture

When two or more persons join together for a specific business, it is called Joint Venture. It 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.

18.2 Characteristics of Joint Venture

 The main features of a Joint Venture business are-

(i)     Two or more persons join together for a single venture.

(ii)    They share profits and losses in the agreed proportion (in absence of any agreement, profit or loss issued equally).

(iii)    Interest on capital, salary to co-venturers may be paid as per agreement (in absence of any agreement, no interest or salary is payable).

(iv)  Going concern concept may not be applicable in some cases.

(v)   The Joint Venture business dissolves in completion of venture.

18.3 Distinction between Joint Venture and Partnership

Basis of Distinction		Joint Venture	Partnership
1	Scope	It is a terminable venture.	It is a gong concern.
2	Persons   involved	The persons carrying on business are called co-venturers.	The persons carrying on business are called partners.
3	Ascertainment of profit or loss	The profits or losses are ascertained at the end of specific venture or on interim annual basis.	The profits or losses are ascertained on an annual basis.
4	Legal Status	No specific act is applicable.	Governed by Indian Partnership Act, 1932.
5	Separate set of Books	No need for a separate set of books. Co-venturer’s own books only maintained.	Separate set of books have to be maintained.
6	Name	It may not use any firm or organization name.	It has always a name.

18.4 Distinction between Joint venture and Consignment

Basis of Distinction		Joint Venture	Consignment
1	Persons   involved	The persons carrying on business are called co-venturers.	The persons carrying on business are called Consignor (or Principal) and Consignee (or Agent).
2	Share of profit or loss	Co- venturers share profit and losses.	Consignor bears profit and losses and consignee is entitled to commission only.
3	Ownership	Co- venturers are equal owners.	Consignor is principal and consignee is his agent.

18.5 Accounting Methods or Joint Venture

Generally there are two ways to keep records of joint venture:

1. When separate set of books are maintained.
2. When no separate set of books are maintained.

18.5.1 When Separate Set Books are Maintained

Under this method following accounts are opened.

-         Joint Bank Account.

-         Joint Venture Account.

-         Personal Accounts of the Co-venturers or Co-venturers’ Accounts.

(i)    Joint Bank Account: The Co-venturers open a separate Bank Account called Joint Bank Account. All receipts and payments, like capital contribution, expenses and sales or collections from transactions are done through this account.

(ii)   Joint Venture Account: This 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.

(iii)  Co-venturers’ Account: Venturers contributions of cash, goods or venture expenditure and direct payment received are entered here.

18.5.1.1 When Separate Book Maintained

Journal entries of joint venture when separate book maintained:

Journal Entries

(1)	For initial contribution by the co-venturers to open Joint Bank Account.
	Joint Bank A/c	Dr.
	To Co-venturers’ A/c
(2)	For expenses paid out of Joint Bank Account.
	Joint Venture A/c	Dr.
	To Joint Bank A/c
(3)	For goods supplied by venturers or direct payment made by venturers
	Joint Venture A/c.	Dr.
	To Co-ventures’ A/c’s
(4)	For cash purchase of goods
	Joint Venture A/c	Dr.
	To Joint Bank A/c
(5)	For purchase of goods on credit
	Joint Venture A/c	Dr.
	To Suppliers A/c
(6)	For goods returned to supplier
	Suppliers A/c	Dr.
	To Joint Venture A/c
(7)	For amount paid to suppliers or creditors
	Supplier A/c	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.
	To Debtors A/c
(11)	For collection from debtors
	Joint Bank A/c	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.
	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
(15)	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.
	For profit on joint venture
(16)	Joint Venture A/c’s	Dr.
	To Co-ventures’ A/c’s
(17)	For Loss on Joint Venture
	Co-ventures’ A/c’s	Dr.
	To Joint Venture A/c.
(18)	For closing the Joint Bank A/c
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. It established the accuracy of books of Account.
	Co-ventures’ A/c’s	Dr.
	To Joint Bank A/c.

If any Co-venturers’ Accounts shows the debit balance, he will bring the money in venture.

	Joint Bank A/c	Dr.
	To Co-venture A/c.

Example: (Unsold goods taken by Co-venturers)

Mr. X and Mr. Y both decided to undertake joint venture and share profits and losses in the ratio of 5:3. Mr. X and Mr. 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. Mr. X purchased 8 pieces of DVD Player @ Rs.2,000 per player and spent Rs.300 as expenses. Mr. Y sold 6 pieces of DVD Player @ Rs.3,000 per player and paid Rs.150 as sales expenses. Mr. Y purchased 5 pieces of Home Theatre System @ Rs.3,000 and spent Rs.300 for bringing it to godown. Mr. 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 Mr. X and Mr. Y respectively at cost.

Prepare Joint Venture Account, Joint Bank Account and Venturers’ Accounts.

Solution:

Joint Venture A/c

Dr.							Cr.
Date	Particulars	JF	Amount Rs.	Date	Particulars	JF	Amount Rs.
	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 Mr. X for purchase)		300		Mr. X – 2 pcs DVD @ Rs.2,000                 = 4,000
	- (Expenses made by Mr. Y for purchase)		300		Proportioned Purchase Expenses (Rs.300 x 2/8)        =      75		4,075
	- (Expenses made by Mr. Y for sales)		150		Mr. Y – 1 pc’s Home Theatre@ Rs.3,000 = 3,000
	- (Expenses made by Mr. 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:-
	Mr. X (Rs.9,185 x 5/8)		5,741
	Mr. Y (Rs.9,185 x 3/8)		3,444
			41,135				41,135

Joint Bank A/c

Dr.								Cr.
Date	Particulars	JF	Amount Rs.	Date	Particulars		JF	Amount Rs.
	To Co-venturers’ A/c				By Joint venture A/c
	(Mr. X capital)		25,000		(Purchased 8 pieces of DVD Player @ Rs.2,000 per player)			16,000
	(Mr. 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
	(Sold 6 pieces of DVD Player @ Rs.3,000 per player)		18,000		X Y (Amt.withdrawn)	27,166 28,834
	(Sold 4 pieces of Home Theatre System @ Rs.4,000)		16,000					56,000
			87,000					87,000

Co-venturers’ Account

Dr.									Cr.
Particulars		Mr. X		Mr. Y	Particulars		Mr. X			Mr. Y
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
					(Expenses made by Mr. X and Mr. Y for purchase)		300			300
					(Expenses made by Mr. X and Mr. Y for sale)		200			150
					By Joint Venture A/c
					Profit:-
					Mr. X (Rs.9,185 x 5/8)		5,741
					Mr. Y (Rs.9,185 x 3/8)					3,444
		31,241		31,894			31,241			31,894

NOTE: - It is assumed that entire sales proceeds have been deposited in the Bank.

Illustration 4: (unsold goods in Joint Venture)

A and B entered into a joint venture on 1.10.1993 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 for the period ended 31.3.1994 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. 1/5^th of the remaining goods purchased by A were destroyed by fire on 28^th February, 1994 and the insurance company paid a claim for Rs.2,000. Write up Joint Venture Account, Joint Bank Account and Venturers’ Accounts.

[C.U. B. Com. (Hons.) – 1994]

Solution:

Working Notes:

1.     Calculation 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
	53,820
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
	56,500

2.     Calculation of Closing Stock

90% of goods were sold by A. Therefore, 10% goods remain as unsold stock. Again 1/5^th 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.

For A:	Rs.
10% of Rs.(40,000 + 6,000)	4,600
Less: goods destroyed by fire (1/5th of 4,600)	920
	3,680
For B:
20% of Rs.( 50,000 + 6,500)	11,300
Total Closing stock in Joint Venture (3,680 + 11,300)	14,980

Joint Venture Account

Dr.							Cr.
Date	Particulars	Rs.	Rs.	Date	Particulars	Rs.	Rs.
	To Joint Bank A/c:				By Joint Bank A/c
	- Goods purchased by A	40,000			(Wn. 1)
	- Goods purchased by B	50,000	90,000		- Sales made by A	53,820
	To Co-Venturers’ A/cs:				- Sales made by B	56,500	1,10,320
	- Expenses incurred by A for purchase	6,000			By Joint Bank A/c (Insurance claim) [Note]		2,000
	- Expenses incurred by B for purchase	6,500	12,500
	- Expenses incurred by A for sale	2,500
	- Expenses incurred by B for sale	3,000	5,500
	To Co-Venturers’ A/cs			31.3.94	By Closing Stock		14,980
	(Commission):				(Note 2)
	A – (5% on Rs.53,820)	2,691
	B – (5% on Rs.56,500)	2,825	5,516
31.3.94	To Co-Venturers’ A/cs
	– share of profit:
	A – (3/8th of Rs.13,784)	5,169
	B – (5/8th of Rs.13,784)	8,615	13,784
			1,27,300				1,27,300

Joint Bank Account

Dr.						Cr.
Date	Particulars		Rs.	Date	Particulars	Rs.
1.10.93	To C-Venturers’ A/cs				By Joint Venture A/c (purchase)	90,000
	A	60,000		31.3.94	By Balance c/d [Note]	1,22,320
	B	40,000	1,00,000
	To Joint Venture A/c
	(Sale proceeds)		1,10,320
	To Joint Venture A/c
	(Insurance Claim)		2,000
			2,12,320			2,12,320

Co- Venturers’ Accounts

Dr.							Cr.
Date	Particulars	A	B	Date	Particulars	A	B
	To Balance c/d [Note}	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
		76,360	60,940			76,360	60,940

Note: In the problem, there is no mention about the final settlement  on 31.3.94. Therefore, 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.

18.5.1.2 Accounting Methods when no separate set of books are maintained

When no separate set of books of account are maintained for joint venture, then each venture may maintain their accounts independently, in following ways:

(i)     Each co-venturer keeps records of all transactions

(ii)     Each co-venturer keeps records of their own transactions only.

Under this method, a Memorandum Joint Venture Account is prepared.

18.5.1.2.1 When each co-venturer keeps records of all transactions:

i)      Under this method, every co-venturer maintains two accounts in his books of account viz. Joint Venture Account, and other Co- venturer Account.

ii)     Joint Venture Account: It 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.

iii)    Journal entries are passed by the co-venturers in his books of account.

Journal Entries

(1)	For supply of goods to venture out of business stock.
	Joint Venture A/c	Dr.
	To Purchase A/c
(2)	For meeting expenses of venture.
	Joint Venture A/c	Dr.
	To Bank A/c
(3)	When co-venturer supplies goods and incurs expenses for venture.
	Joint Venture A/c.	Dr.
	To Co-venturers’ A/c.
(4)	For sale of goods.
	Bank A/c	Dr.
	To joint Venture A/c.
(5)	For venture sale made by the co-venturers’
	Co-venturers’ A/c	Dr.
	To Joint Venture A/c.
(6)	For 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
(9)	a. For venture profit.
	Joint Venture A/c	Dr.
	To Profit or Loss A/c.		(for own shares)
	To Co-venturer A/c.	(for co-venturer’s share)
	b. For venture loss.
	Profit and Loss A/c	Dr.	(for own shares)
	Co-venturer A/c	Dr.	(for co-venturer’s share)
	To Joint Venture A/c.
(10)	For settlement of claims. Account with co-venturer will be settled through appropriate remittance.
	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.

So, two special ledger accounts are necessary for joint venture transactions in the book of a venturer:

(i)     Joint Venture Account and

(ii)    Co-venturer’s Account.

Example:

A and B are partners in a joint venture sharing profit and losses in the proportion of 3/5^th  and 2/5^th 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.

Give the journal entries and relevant ledger accounts in the books of A.

Solution:

Journal Entries in the book’s of A

				Dr.	Cr.
Date	Particulars		L F	Amount (Rs.)	Amount (Rs.)
	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.800)
	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 Rs.(18,600 x 3/5)				11,160
	To B’s A/c Rs.18,600 x 2/5)				7,440
	(Profit  on joint venture transferred to Profit & Loss A/c and B’s A/c)
	Bank A/c	Dr.		19,560
	To B’s A/c				19,560
	(Being the sum due from B received)

In the book’s of A

Joint Venture A/c

Dr.			Cr.
Particulars	Amount (Rs.)	Particulars		Amount (Rs.)
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
	32,000			32,000

B’s Account.

Dr.			Cr.
Particulars	Amount (Rs.)	Particulars		Amount (Rs.)
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
		(Commission)
		By Joint Venture A/c		7,440
		(Share of Profit)
		By Bank A/c		19,560
		(Due balance  received from B)
	32,000			32,000

18.5.1.2.2 When each co-venturer keeps records of their own transactions only:

a)    Sometimes the venturers find it unnecessary to keep full record of venture transactions. Rather they keep record of own transactions only. For this purpose, open ‘Joint Venture with Co-venturer A/c’. All expenses, profit earned and materials sent should be debited and receipt from joint venture, loss should be credited.

b)    Following accounts are prepared in the books of each co-venturer:

(A)     Memorandum Joint Venture Account

(B)     Joint Venture with other Co-venturer Account.

c)     Journal entries in the books of Venturers:

Journal Entries

(1)	For supply of material from stores.
	Joint Venture with X A/c	Dr.
	To Purchase A/c
(2)	For payment of expenses.
	Joint Venture with X A/c	Dr.
	To Bank/Cash A/c
(3)	For sale on venture.
	Bank A/c	Dr.
	To joint Venture with X A/c
(4)	For profit on venture.
	Joint Venture with X A/c	Dr.
	To Profit or Loss A/c.
(5)	For final payment to co-venturer.
	Joint Venture with X A/c	Dr.
	To Bank A/c.
(6)	For final payment made by co-venturer.
	Bank A/c	Dr.
	To Joint Venture with X A/c.

d)    Memorandum Joint Venture Account

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.

e)     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.

Example:

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.

On 15^th October, 2009, A bought 5 bikes for Rs.40,000 and on 20^th October, 2009, he paid tax and insurance amounting to Rs.2,500. On 31^st October, 2009, he sold these bikes for Rs.68,000, out of which he remitted Rs.10,000 to C paying the balance into his own bank account.

On 20^th October, 2009, B bought 3 bikes for Rs.35,000 and 25^th October, 2009, he paid tax and insurance Rs.900 and repair charges amounting to Rs.1,500. He sold one bike on 2^nd November, 2009, 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 on 10^th November, 2009.

Prepare the Memorandum Joint Venture Account and the Account of the Joint Venture with B in the books of A.

Solution:

Memorandum Joint Venture Account

Dr.							Cr.
Date	Particulars	J.F.	Amount (Rs.)	Date	Particulars	J.F.	Amount (Rs.)
2009				2009
Oct.	To A A/c			Oct.	By A A/c
15	(Purchases)		40,000	31	(Sales proceeds received by A)		68,000
20	(Tax and Insurance)		2,500	Nov.	By B A/c
	To B A/c			2	(Sales proceeds received by B)		15,000
20	(Purchases)		35,000		By A A/c
25	(Tax and Insurance)		900	10	(Stock taken over by A)		25,000
	Repairing charges.		1,500
Nov.10	To Profit
	(Balance Rs.28,100 allocated to)
	A – 2/5th x Rs.28,100		11,240
	B – 3/5th x Rs.28,100		16,860
			1,08,000				1,08,000

In the Book’s of A

Joint Venture Account with B

Dr.							Cr.
Date	Particulars	J.F.	Amount (Rs.)	Date	Particulars	J.F.	Amount (Rs.)
2009				2009
Oct.	To Bank A/c			Oct.	By Bank A/c.		68,000
15	(Purchases)		40,000	31	(Sales proceeds received by A)
20	(Tax and Insurance)		2,500	Nov	By Bikes A/c		25,000
31	(Remitted to C)		10,000		(Stock taken by A)
Nov. 10	To Profit and Loss A/c (Profit)		11,240
10	To Bank A/c (bal. fig.)		29,260
			93,000				93,000