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Principles and Practice of Accounting > Joint Ventures > Joint Venture Accounting with Separate Books
Joint Ventures

Joint Venture Accounting with Separate Books

A joint venture is an arrangement in which two or more parties agree to pool their resources for the purpose of a specific task or transaction. This task may be a fresh project or any other business activity. In a joint venture, each of the members is responsible for profits, losses and costs associated with it. However, the venture is an entity separate from its participants. Here, we will discuss the Joint Venture Accounting with Separate Books.

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Joint Venture Accounting with Separate Books

The joint venture accounting can be done in any of the following two ways:

  1. When the separate set of books are maintained
  2. When the separate set of books are not maintained

We will here deal with the situation when the separate set of books are maintained. Thus, the following accounts are made:

  • Joint bank account
  • Joint venture account
  • Co-venturers account

(1) Joint Bank Account

The co-venturers open a separate bank account for the venture transactions. They make initial contributions to this account. The bank account is normally operated jointly. Expenses are met from this Joint Bank Account. Sales or collections from transactions are deposited into this account.

However, if any co-venturers make direct payments and direct collections; in such a case their Personal Accounts will be credited/ debited for the transactions done. On completion of the venture, the Joint Bank Account is closed by paying the balance to co-ventures.

(2) Joint Venture Account

This account is prepared for measurement of venture profit. This account is debited with all venture expenses and credited with all sales or collections. The excess balance of credit side over the debit side shows the profit on joint venture and vice versa. Profit /Loss are transferred to co-venturers’ accounts in the profit-sharing ratio.

(3) Co-venturers’ Accounts

Personal accounts of the venturers are maintained to keep a record of their contributions of cash, goods. Expenditure directly paid and payments directly received by co-venturers are also recorded in this account. The profit or loss so made on the venture is transferred to this account in the agreed profit sharing ratio. This account is also closed on completion of the venture.Joint Venture Accounting

Journal Entries when the Separate Set of Books are maintained

Date Particulars   Amount (Dr.) Amount (Cr.)
1. The initial contribution made by the co-venturers Joint Bank a/c Dr.  xx
To co-ventures’ a/c  xx
(Being capital contribution made)
2.For expenses paid out of joint bank a/c Joint venture a/c Dr.  xx
To joint Bank a/c  xx
(Being expenses incurred)
3.For expenses paid/Goods brought in by co-ventures Joint venture a/c Dr.  xx
To co-ventures’ a/c  xx
(Being goods brought in)
4.Entry for loss of goods No entry
5. For insurance claim received Joint Bank a/c Dr.  xx
To Joint venture a/c  xx
(Being insurance claim received)
6.Entry for sale of goods /receipt of contract price Joint Bank a/c Dr.  xx
To joint venture a/c  xx
(Being goods sold)
7. Depreciation on joint assets No entry
8.Entry for unsold goods /unutilized assets taken over by co-ventures Co-ventures’ a/c Dr.  xx
To Joint venture a/c  xx
(Being goods taken over by Co ventures)
9. For profit on joint venture Joint venture a/c Dr.  xx
To co-ventures’ a/c  xx
(Being profit transferred)
10. For final settlement Co-ventures’ a/c Dr.  xx
To Joint Bank a/c  xx
(Being amount paid)
11. For loss on joint venture Co-ventures’ a/c Dr.  xx
To Joint venture a/c  xx
(Being loss transferred)
12. For payment made to creditors Creditors a/c Dr.  xx
To Joint Bank a/c  xx
(Being payment made to creditors)
13.For payment received from debtors Joint Bank a/c Dr.  xx
To Debtors a/c  xx
(Being payment received from debtors )

Solved Example for You

Q: Alfa and Beta enter a joint venture to prepare a film for the Government. The Government agrees to pay Rs.200,000. Alfa contributes Rs.20000 and Beta contributes Rs.30000. These amounts are deposited into a Joint Bank Account. Payments made out of the joint bank account were:

  • Purchase of equipment-   12000
  • Hire of equipment-           10000
  • Wages-                                90000
  • Material-                            20000
  • Office expenses-               10000

Alfa paid 4000 as licensing fee. On completion, the film was found defective and the government made a deduction of 20000. The equipment was taken over by Beta at a valuation of 4000. Separate books of account were maintained for the joint venture accounting whose profits were divided in the ratio of Alfa- 2/5 and Beta- 3/5. Prepare required ledger accounts.

Ans:

Joint bank A/c

Date Particulars Amount Date Particulars Amount
xxxx To alfa 20000 xxxx By joint venture a/c- 142000
xxxx To beta 30000   equipment  – 12000
xxxx To joint venture a/c 180000   Hire of equipment- 10000
        Wages  – 90000
        Materials  – 20000
xxxx Office expenses – 10000
xxxx By alfa 39200
xxxx By beta 48800
230000 230000

Joint venture A/c

Date Particulars Amount Date Particulars Amount
xxxx To joint bank a/c 142000 xxxx By joint bank a/c      (200000-20000) 180000
equipment  – 12000 xxxx By beta           (equipment was taken) 4000
Hire of equipment- 10000
Wages  – 90000
Materials  – 20000
Office expenses – 10000
xxxx To alfa- licensing fee 4000
xxxx To profit to:      Alfa             15200 Beta           22800 38000
184000       184000

Alfa’s A/c

Date Particulars Amount Date Particulars Amount
Xxxx To joint bank a/c (repayment) 39200 xxxx By joint bank a/c 20000
xxxx By joint venture a/c-Fees 4000
xxxx By joint venture a/c-Profit 15200
39200       39200

 Beta’s A/c

Date Particulars Amount Date Particulars Amount
To joint venture a/c-Equipment 4000 Xxxx By joint bank a/c 30000
Xxxx To joint bank a/c –Repayment 48800 xxxx By joint venture a/c-Profit 22800
52800       52800

 

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