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.

Browse more Topics under Joint Ventures

• Meaning And Features Of Joint Venture Transactions
• Distinction Between Joint Venture And Partnership
• Joint Venture Accounting with No Separate Books are maintained

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.

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