Joint Venture Accounts | Financial Accounting Notes | B.Com 1st Sem | CBCS Pattern

Joint Venture Account
Financial Accounting Notes
B.Com 1st Semester CBCS Pattern

Meaning of Joint Venture

Table of Contents

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

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.

The profits are ascertained for each venture separately.

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.

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.

Journal Entries Under this Method

a) For contribution of capital by coventurer:

Joint Bank A/c          Dr

To Joint Venture A/c            

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)

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)

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

e) For Commission/salary to co-venturers.

Joint Venture A/c          Dr.

To Co-venturers A/c

f) Unsold goods taken over by co-venturers.

Co-venturers A/c              Dr.

To Joint Venture A/c

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

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

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

In books of Co-venturer X

In books of Co-venturer Y

For supply of goods and services by X

Joint Venture A/c        Dr.

To Purchases A/c

To Cash/Bank A/c

Joint Venture A/c          Dr.

To X’s A/c

For supply of goods and services by Y

Joint Venture A/c           Dr.

To Y’s A/c

Joint Venture A/c           Dr.

To Purchases A/c

To Cash/Bank A/c

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

If Sale proceeds is received by X

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

Y’s A/c            Dr.

To Joint Venture A/c

Cash/Bank A/c         Dr.

To Joint Venture A/c

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

For profit on joint venture

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

For loss on joint venture

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

1. For Supply of Material:

Joint Venture with coventurer A/c        Dr.

To Purchases A/c

2. For Payment of Expenses

Joint Venture with coventurer A/c        Dr.

To Cash/Bank Account

3. Collection from sale of goods of joint venture:

Cash/Bank A/c       Dr.

To Joint Venture with coventurer A/c

4. For Profit on Joint Venture

Joint Venture with coventurer A/c     Dr.

To Profit & Loss A/c

5. For Loss on Joint Venture.

Profit & Loss A/c           Dr.

To Joint Venture with coventurer A/c

6. For final payment to co-venturer

Joint Venture with coventurer A/c         Dr

To Bank A/c

7. For Final payment made by co-venturer

Bank A/c              Dr

To Joint Venture with coventurer A/c

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