Memorandum Joint Venture

We know that Joint Venture is an agreement whereby two or more parties join together to carry a specific business for a specific period of time. It is controlled jointly by all the parties to the joint venture and the profits and losses are shared as per the agreed ratio.

Also, it comes to an end when the time period elapses or the specific purpose is fulfilled. The parties undertaking a Joint Venture are Co-venturers. Let us study the method of preparing memorandum Joint Venture A/c.

Memorandum Joint Venture

When there are no separate books of accounts for the joint venture, in this case, each Co-venturer can maintain the records in the following two ways:

1. Keep records of all the transactions
2. Keep records of own transactions only

When the co-venturers choose to keep the record of their own transactions only, then we prepare the Memorandum Joint Venture A/c. In this case, each co-venturer records only his own transactions.

For this purpose, each of them opens a ‘Joint Venture with Co-venturer’s A/c’. Also, each of them debits all the expenses, incomes, profits and losses from the joint venture to this account.

Learn more about Entries when Separate Books are not maintained here in detail

However, we cannot ascertain the profit or loss from the venture from this account. For determining the profit or loss of the Joint Venture, they prepare ‘Memorandum Joint Venture A/c’.

Each co-venturer sends a periodic statement of his transactions relating to the joint venture to the other co-venturers.

This statement helps in the preparation of the Memorandum Joint Venture A/c. As this account is not a part of the double entry system, we call it memorandum A/c.

Source: freepik.com

Journal Entries

Date	Particulars		Amount (Dr.)	Amount (Cr.)
1. Receipt of any amount or bill from other co-venturer	Cash/ Bank/ Bills receivable A/c	Dr.	XXX
	To Joint Venture with Co-venturer’s A/c			XXX
	(Being receipt of money or bill from the other co-venturer)
2. On discounting of B/R	Bank A/c (amount received)	Dr.	XXX
	Joint Venture with Co-venturer’s A/c (discount)	Dr.	XXX
	To Bill Receivable A/c			XXX
	(Being bill discounted with the bank)
3. Purchase of goods for venture	Joint Venture with Co-venturer’s A/c	Dr.	XXX
	To Cash/ Bank A/c			XXX
	To Supplier’s A/c			XXX
	(Being cash or credit purchase of goods for Joint Venture)
4. On payment to supplier	Supplier’s A/c	Dr.	XXX
	To Bank A/c (amount paid)			XXX
	To Joint Venture with Co-venturer’s A/c (discount received)			XXX
	(Being payment to the supplier)
5. Supply of goods out of business	Joint Venture with Co-venturer’s A/c	Dr.	XXX
	To Purchases/ Goods sent to Joint venture A/c (when at cost)			XXX
	To Sales A/c (when at profit)			XXX
	(Being supply of goods to Joint Venture from the business stock)
6. On payment of expenses	Joint Venture with Co-venturer’s A/c	Dr.	XXX
	To Cash/ Bank A/c (cash expenses)			XXX
	To Creditors A/c (outstanding expenses)			XXX
	(Being payment of expenses of the joint venture)
7. On the sale of goods	Cash/ Bank A/c (cash sales)	Dr.	XXX
	Customer’s A/c (credit sales)	Dr.	XXX
	To Joint Venture with Co-venturer’s A/c			XXX
	(Being sale of goods)
8. Receipt from customers	Cash/ Bank A/c (amount received)	Dr.	XXX
	Joint Venture with Co-venturer’s A/c (discount allowed)	Dr.	XXX
	To Customer’s A/c			XXX
	(Being receipt of the amount from the customers)
9. On taking unsold goods	Goods sent on Joint venture A/c	Dr.	XXX
	To Joint Venture with Co-venturer’s A/c			XXX
	(Being unsold goods taken)
10. Commission or salary to the co-venturer	Joint Venture with Co-venturer’s A/c	Dr.	XXX
	To Commission/ Salary A/c			XXX
	(Being commission or salary payable to the co-venturer)
11. On profit from the venture	Joint Venture with Co-venturer’s A/c	Dr.	XXX
	To Profit and Loss A/c			XXX
	(Being profit on joint venture)
12. On loss from venture	Profit and Loss A/c	Dr.	XXX
	To Joint Venture with Co-venturer’s A/c			XXX
	(Being loss on venture)
13. For settlement of balance of Joint Venture with Co-venturer’s A/c
a. When debit balance	Cash/ Bank A/c	Dr.	XXX
	To Joint Venture with Co-venturer’s A/c			XXX
	(Being settlement of Joint Venture with Co-venturer’s A/c)
b. When credit balance	Joint Venture with Co-venturer’s A/c	Dr.	XXX
	To Cash/ Bank A/c			XXX
	(Being settlement of Joint Venture with Co-venturer’s A/c

Solved Example on Memorandum Joint Venture

Ana and Peter enter into a joint venture to buy and sell washing machines, on 1^st April 2018. On 1^st April 2018, Ana sent a cheque of ₹600000 to Peter. On 4^th April 2018, Peter purchased 500 washing machines each at a cost of ₹4000. He sent the machines to Ana. Ana collected them and paid the freight of ₹5000 on 15^th April. On 25^th May 2018, Ana settled the account with Peter and sent him a cheque. They share profits equally.

The details of sales by Ana are:

Date	No. of washing machines	Sale Price per washing machine	Discount on the sales price
16th April 2018	50	6000	20%
30th April 2018	150	5600	Nil
15th May 2018	200	5400	10%

 

In Ana’s book show:

(i). Joint Venture with Peter A/c

(ii). Memorandum Joint Venture A/c

Ans.

In the books of Ana

Joint Venture with Peter A/c

Date	Particulars	Amount		Date	Particulars	Amount
1 Apr	To Bank A/c ( cheque)	600000		16 Apr	By Bank A/c (sales)	240000
15 Apr	To Bank A/c (freight)	5000		30 Apr	By Bank A/c (sales)	840000
25 May	To Profit & Loss A/c (share of profit)	23500		15 May	By Bank A/c (sales)	972000
25 May	To Bank A/c (settlement)	1423500
		2052000				2052000

Memorandum Joint Venture A/c

Particulars		Amount		Particulars		Amount
To Cost of 500 washing machines		2000000		By Sales proceeds (net)
To Freight		5000		50 machines @ 4800		240000
To Profit:		47000		150 machines @ 5600		840000
Ana	23500			200 machines @ 4860		972000
Peter	23500
		2052000				2052000