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:
- Keep records of all the transactions
- 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. | Â 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 1st April 2018. On 1st April 2018, Ana sent a cheque of ₹600000 to Peter. On 4th 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 15th April. On 25th 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 |
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