Joint Venture Account
Financial Accounting Notes
B.Com 1st Semester CBCS Pattern
Meaning of Joint Venture
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Table of Contents |
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1. Meaning
of Joint Venture Account 2. Features
– Merits – Demerits of Joint Venture 3.
Difference between Partnership and Joint Venture 4.
Difference between Consignment and Joint Venture 5. Various
Methods of Preparing Joint Venture Account a) Method –
1: Separate Accounts are maintained by Opening Joint Venture Account b) Method –
2: When no separate books are maintained c) Method –
3: When each Co-venture keeps records of their own transactions only: |
A joint venture is the combination of two or more persons into a specific
single activity. It is a form of partnership which is limited to a specific
venture. It is exactly the same as partnership, with the exception that it is one
of a business that is to be terminated after completion of venture for which it
is started. Since the business is to be terminated after completion of the
venture, a firm name is not generally used. Thus the joint venture is like a temporary partnership with
or without a firm name. It can also be said a particular partnership or
partnership for a particular object.
Features of a Joint Venture:
a)
It is a partnership for specific purpose only.
b)
The business is dissolved after the completion
of venture.
c)
Going concern concept is not applicable in
case of joint venture.
d)
Provisions of Indian Partnership Act are also
applicable in case of joint venture.
e)
It does not use a firm name generally.
Merits of Joint Venture:
a)
Sharing of risks and liability.
b)
Low or no risk opportunities and massive leverage.
c) Access to new and modern technology.
d) It helps in expansion of business.
e) High profitability.
Demerits of Joint Venture:
a)
It is a Short term partnership
b)
While preparing accounts, many accounting concepts are not applicable such as
the going concern concept.
c)
Chances of loss of reputation if venture associated with wrong people.
d)
The level of expertise, investment and technology of both the parties are not
equally matched.
e)
Objective of joint venture in some cases is undefined.
Difference between Partnership and Joint Venture
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Basis of
Difference |
Partnership |
Joint
Venture |
|
Going
Concern |
It
is a going concern. |
It
is a terminable venture. |
|
Purpose |
It
is not started for specific venture. |
It
is started for a specific venture or business. |
|
Name |
It
always has a name. |
It
may or may not bear a name. |
|
Parties |
Persons
carrying on business are called partners. |
Persons
carrying on business are called co-venturers. |
|
Ascertainment
of profit |
Profits
are ascertained at regular intervals, i.e., annually. |
|
|
Separate
set of books |
There
is no need for a separate set of books for a joint venture. Accounts can be
maintained in the books of any co-venturer. |
Separate
set of books have to be maintained for each partnership business. |
Difference between Consignment and Joint Venture
|
Basis of
Difference |
Consignment |
Joint
Venture |
|
Parties |
There
are two parties i.e. the principal and the agent. |
The
numbers of parties are two or more and all the parties are known as
co-ventures. |
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Relationship |
The
relationship between consignor and consignee is principal and the agent. |
Co-ventures
are principal as well as agent. |
|
Term (Period): |
Consignment
is not confined to any specific term or period. |
Joint
venture is confined only to a specific venture. |
|
Ownership |
The
ownership of consignment is always with consignor and the agent has no right
of ownership in the goods. |
In
case of joint venture, all the co-ventures are the joint owner. |
|
Sharing of Profit or Loss |
The
profit on the consignment belongs to the principal (Consignor). |
The
profit or loss is shared equally by all the concerned parties, unless
otherwise decided. |
|
Account Sale |
Account
sale is prepared |
No
need to prepare account sale |
Various Methods of Preparing accounts of a Joint Venture
Method – 1: Separate Accounts are maintained by Opening Joint Venture
Account
Under
this method separate books are kept for the joint venture through opening of a
separate bank account. Contributions by the co-venturers are deposited in this
account; as far as possible payments on account of the joint venture are made
out of this bank account. At the close the profit or loss is transferred to the
accounts of the Co-Ventures and the amounts due to them are then paid out of
the joint bank account which is then closed.
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Journal
Entries Under this Method |
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a) For
contribution of capital by coventurer: Joint Bank A/c Dr To Joint Venture A/c |
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b) For
goods purchased or supplied by partners: Joint Venture A/c Dr. To Joint Bank A/c (If purchased) To Coventurers A/c (If supplied by coventurers) |
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c) For
expenses paid out of joint bank or contributed by coventurers: Joint Venture A/c Dr. To Joint Bank A/c (If paid out of joint bank) To Coventurers A/c (If contributed by coventurers) |
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d) For
Goods sold: Joint Bank A/c Dr Or Shares A/c Dr (If payment is received in the form of shares) Coventurer A/c Dr (If sale proceeds are retained by partners) To Joint Venture A/c |
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e) For
Commission/salary to co-venturers. Joint Venture A/c Dr. To Co-venturers A/c |
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f) Unsold
goods taken over by co-venturers. Co-venturers A/c Dr. To Joint Venture A/c |
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g) If
shares are taken over by partner or sold in open market Co-venturers A/c Dr. (if taken over by partner) Joint Bank A/c Dr (If sold in open market) To Shares A/c |
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h) For
sharing of profits on joint venture: Joint Venture A/c Dr. To Co-venturers A/c If case of loss: Co-venturers A/c Dr. To Joint Venture A/c |
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i) Final
distribution of funds: Payment to coventurer Co-venturers A/c Dr. To Joint Bank A/c If cash is received from
coventurer: Joint Bank A/c Dr To Co-venturers A/c |
Method – 2: When no separate books are
maintained
The co-venturers may decide not to keep separate books of account for the venture if it is for a very short period of time. In this case, all co-venturers will have account for the transactions in their own books. Here no Joint bank a/c is opened and the co-venturers do not contribute in cash. Goods are supplied by them from out of their stocks and expenses for the venture are also settled the same way. Each co-venturer will prepare a joint venture a/c and the other co-venturer’s a/c in his books. Naturally, the profit or loss is separately calculated by each co-venturer. Each co-venturer will taken into a/c all transactions i.e., done by himself and by his co-venturer as well.
Journal Entries under this Method
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In
books of Co-venturer X |
In
books of Co-venturer Y |
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For supply of goods and
services by X |
|
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Joint Venture A/c Dr. To Purchases A/c To Cash/Bank A/c |
Joint Venture A/c Dr. To X’s A/c |
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For supply of goods and
services by Y |
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Joint Venture A/c Dr. To Y’s A/c |
Joint Venture A/c Dr. To Purchases A/c To Cash/Bank A/c |
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For advance given by X to Y or
bill accepted by X |
|
|
Y’s A/c Dr. To Cash/Bank A/c To Bills Payable A/c |
Cash/Bank A/c Dr. Bills Receivable A/c Dr. To X’s A/c |
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If Sale
proceeds is received by X |
|
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Cash/Bank A/c Dr. To Joint Venture A/c |
X’s A/c Dr. To Joint Venture A/c |
|
If Sale proceeds is received by Y |
|
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Y’s A/c Dr. To Joint Venture A/c |
Cash/Bank A/c Dr. To Joint Venture A/c |
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If unsold
stock is taken over by X |
|
|
Purchases A/c Dr. To Joint Venture A/c |
X’s A/c Dr. To Joint Venture A/c |
|
For unsold
goods taken over by Y |
|
|
Y’s A/c Dr. To Joint Venture A/c |
Purchases A/c Dr. To Joint Venture A/c |
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For profit
on joint venture |
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Joint Venture A/c Dr. To Y’s A/c To Profit & Loss A/c |
Joint Venture A/c Dr. To X’s A/c To Profit & Loss A/c |
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For loss
on joint venture |
|
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Y’s A/c Dr. Profit & Loss A/c Dr. To Joint Venture A/c |
X’s A/c Dr. Profit & Loss A/c Dr. To Joint Venture A/c |
Method – 3: When each Co-venture keeps records of their own transactions only:
Instead of recording each and every transactions of joint venture, sometimes co-venturers record their own transactions only. For this purpose, they open ‘Joint Venture with Co-venturer A/c’. All expenses incurred, materials sent, etc. are debited to this account. Profit earned is also debited to this account while the loss sustained is credited. Any receipt from joint venture or from co-venturer is credited to his account, while any payment to the co-venturer is debited to this account. However, profit/loss on joint venture cannot be determined from this account, for which a Memorandum Joint Venture Account is prepared in the same manner in which Joint venture account is prepared under different method.
Journal Entries
under this Method
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1. For
Supply of Material: Joint Venture with coventurer A/c Dr. To Purchases A/c |
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2. For
Payment of Expenses Joint Venture with coventurer A/c Dr. To Cash/Bank Account |
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3.
Collection from sale of goods of joint venture: Cash/Bank A/c Dr. To Joint Venture with coventurer A/c |
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4. For
Profit on Joint Venture Joint Venture with coventurer A/c Dr. To Profit & Loss A/c |
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5. For Loss on Joint Venture. Profit & Loss A/c Dr. To Joint Venture with coventurer A/c |
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6. For
final payment to co-venturer Joint Venture with coventurer A/c Dr To Bank A/c |
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7. For
Final payment made by co-venturer Bank A/c Dr To Joint Venture with coventurer A/c |
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