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Principles and Practice of Accounting > Joint Ventures > Joint Venture Accounting with No Separate Books are maintained
Joint Ventures

Joint Venture Accounting with No Separate Books are maintained

Joint Venture is an agreement where two or more parties come together for carrying a specific business for a specified period of time. The co-venturers jointly control the joint venture and share the profits and losses as per the agreed ratio. Joint Venture ends when the time period elapses or the specific purpose is fulfilled. The persons who undertake a Joint Venture are called Co-venturers.  The co-venturers maintain a Joint Venture Account to measure the profit or loss from the Joint Venture.

Joint Venture Accounting with No Separate Books are maintained

The two ways of Joint Venture Accounting are:

  1. Maintain Separate books
  2. Do not maintain separate books

In this case, each Co-venturer maintains the record independently of the joint venture transactions. Each Co-venturer maintains the full records of own transactions and that of the other co-venturers. However, if the co-venturers choose to keep the record of their own transactions only then they prepare Memorandum Joint Venture A/c. Thus, there are two conditions:

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1.When each Co-Venturer keeps records of all the transactions

Under this method, each co-venturer prepares Joint Venture Account and Co-venturer’s A/c. Following  are the journal entries:

Date Particulars Amount (Dr.) Amount (Cr.)
1. Goods supplied to venture out of business Joint Venture Account Dr.  xx
To Purchases A/c  xx
(Being goods supplied to Joint Venture from the business stock)
2. Meeting expenses or purchase of venture Joint Venture Account Dr.  xx
To Bank/ Creditors A/c  xx
(Being paid for expenses or purchases regarding the Joint Venture)
3. When other co-venturers incur expenses or supply goods Joint Venture Account Dr.  xx
To Co-venturer’s A/c  xx
(Being expenses incurred or goods supplied to the Joint Venture by other co-venturers)
4. For venture sale Bank / Debtors A/c Dr.  xx
To Joint Venture Account  xx
(Being Joint Venture sale)
5. For venture sale made by the co-venturer Co-venturer’s A/c Dr.  xx
To Joint Venture Account
(Being venture sale made by the co-venturers)
6. Bill of Exchange drawn on the co-venturer Bills Receivable A/c Dr.
To Co-venturer’s A/c  xx
(Being bills receivable drawn on co-venturer)
7. Discounting of bill Bank A/c Dr.  xx
Joint Venture A/c Dr.  xx
To Bills Receivable A/c  xx
(Being bill discounted)
8. Acceptance of bill drawn by other co-venturer Co-venturer’s A/c Dr.  xx
To Bills Payable A/c  xx
(Being bill accepted drawn by the other co-venturer)
9. Bill discounted by the other co-venturer Joint Venture A/c Dr.

 

 xx
To Co-venturer’s A/c  xx
(Being Joint Venture A/c debited with the amount of discount on the bill)
10. For venture profit Joint Venture A/c Dr.  xx
To Profit &Loss A/c (own share)  xx
To Co-venturer’s A/c (their share)  xx
(Being profit on Joint Venture shared)
11. For venture loss Profit &Loss A/c (own share)  Dr  xx
Co-venturers A/c (their share) Dr.  xx
To Joint Venture Account  xx
(Being loss on Joint Venture shared)
12. Settlement of claim
a. Payment due to co-venturer Co-venturer A/c Dr.  xx
To Bank A/c  xx
(Being payment made to co-venturers)
b. Payment due from co-venturer Bank A/c Dr.  xx
To Co-venturer’s A/c  xx
(Being payment received from co-venturer)

 

Joint Venture Account

2. When each Co-Venturer keeps records of own transactions only

Under this method, co-venturers record only their own transactions. For this purpose, they open ‘Joint Venture with Co-venturer’s A/c. They debit all the expenses, incomes, profits and losses from the joint venture to this account. However, we cannot ascertain profit from this account. For determining the profits of the Joint Venture, we prepare ‘Memorandum Joint Venture A/c.

Date Particulars Amount (Dr.) Amount (Cr.)
1. Goods supplied to venture out of business Joint Venture with Co-venturer’s A/c Dr.  xx
To Purchases A/c  xx
(Being goods supplied to Joint Venture from the business stock)
2. Meeting expenses or purchase of venture Joint Venture with Co-venturer’s A/c Dr.  xx
To Bank/ Creditors A/c  xx
(Being paid for expenses or purchases regarding the Joint Venture)
3. For venture sale Bank / Debtors A/c Dr.  xx
To Joint Venture with Co-venturer’s A/c  xx
(Being Joint Venture sale)
4. For venture profit Joint Venture with Co-venturer’s A/c Dr.  xx
To Profit &Loss A/c (own share)  xx
To Co-venturer’s A/c (their share)  xx
(Being profit on Joint Venture shared)
5. For venture loss Profit &Loss A/c (own share)  xx
Co-venturers A/c (their share) Dr.  xx
To Joint Venture A/c  xx
(Being loss on Joint Venture shared)
6. Settlement of claim
a. Payment due to co-venturer Joint Venture with Co-venturer’s A/c Dr.  xx
To Bank A/c  xx
(Being payment made to co-venturers)
b. Payment due from co-venturer Bank A/c Dr.  xx
To Joint Venture with Co-venturer’s A/c  xx
(Being payment received from co-venturer)

Solved Example for You

Q. Atul and Prem enter into a joint venture to buy and sell Air conditioners, on 1st April 2018. On 1st April 2018, Atul sent a cheque of ₹500000 to Prem. On 4th April 2018, Prem purchased 400 A.Cs each at a cost of ₹4000 each. He sent the A.Cs to Atul. Atul collected them and paid the freight of ₹4000 on 15th April. On 25th May 2018, Atul settled the account with Prem and sent him a cheque. They share profits equally.

The details of sales by Atul are:

Date No. of A.Cs Sale Price per A.C. Discount on the sales price
16th April 2018 40 6000 20%
30th April 2018 200 5600 Nil
15th May 2018 160 5400 10%

In Atul’s book show:

  1. Joint Venture with Prem A/c
  2. Memorandum Joint Venture A/c

Ans: In the books of Atul

Joint Venture with Prem A/c

Date Particulars Amount Date Particulars Amount
1 Apr To Bank A/c ( cheque) 500000 16 Apr By Bank A/c (sales) 192000
15 Apr To Bank A/c (freight) 4000 30 Apr By Bank A/c (sales) 1120000
25 May To Profit & Loss A/c (share of profit) 242800 15 May By Bank A/c (sales) 777600
25 May To Bank A/c (settlement) 1342800
2089600 2089600

Memorandum Joint Venture A/c

Particulars Amount Particulars Amount
To Cost of 400 A.C.s 1600000 By Sale proceeds (net)
To Freight 4000 40 A.C.s @ 4800 192000
To Profit: 485600 200 A.C.s @ 5600 1120000
Atul 242800 160 A.C.s @ 4860 777600
Prem 242800
  2089600 2089600

 

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