Chapter-one

Accounting For Joint venture

Joint Venture
• Joint Venture is a temporary form of
business, where two or more persons join
together to meet the short term objectives.
It is quiet similar to Partnership firm, but
established without name or registration
separately under any law.
 Chapter-one
Accounting For Joint venture
Co Venture
• The two or more people who start Joint
Venture to achieve the short term
objectives and ready to share the risk and
return in the venture, are called Co-
Ventures. They are similar to Partners in
the Partnership firm.
 Difference Between Joint Venture and Partnership

Joint Venture Partnership

 Joint Venture does not have  Partnership has its own
any name of running name of running business.
business.
 Members in Joint Venture  Members in Partnership
are Co-Ventures. firm are partners.
 Temporary / short term  Long term objectives are set
objectives are set in joint in partnership firm.
venture.  Registration is optional, but
 No registration of business available.
under any law.
 No separate set of books are  Separate set of books are
maintained in the books of maintained in the books of
joint venture partnership firm
 Difference Between Joint Venture and Partnership

Joint Venture Partnership

 Co-ventures have freedom  Partners do not have
to do similar business and freedom to do similar
complete. business and complete.
 Joint venture is dissolved  Partnership is dissolved
as soon as its work has only at the mutual opinion
been completed. of partners
 Maintenance of separate  Maintenance of separate
set of books Not necessary. set of books mandatory.
 A minor cannot become a  A minor can become a
co venturer partner to the benefits of
the firms
Features of Joint Ventures Account
 Joint venture is a temporary business arrangement
 It is quiet similar to the form of partnership.
 Two or more people join together to meet the
short term objectives.
 It does not have any name or registration
separately under any law.
 The people, who are starting the joint venture and
sharing the risk, return, are called co-ventures.
 The profit of loss of joint venture is ascertained at
the time of closing the business.
Features of Joint Ventures Account
 Co-ventures have unlimited liability if there is a huge
loss in the venture.
 All the assets are received in cash and all liabilities
are paid in cash.
 Joint venture is a special partnership without a firm
name.
 Joint venture does not follow the accounting concept
'going concern'.
 The members of joint venture are known as co-
ventures.
 Joint venture is a temporary business activity.
Journal Entries
Debit
• Anything the ventures put into the
enterprise (e.g. Cash, purchases, expenses
paid etc).
Credit
• Anything the ventures take out of the
enterprise (e.g. Sales and cash withdrawal,
assets withdrawal etc.
Key Words
Joint Venture: When two or more persons joint together to carry
out a specific business and share the profits or losses on
predetermined basis, it is known as a joint venture.
Co-venturer Account: It is a personal account and debited with
sales made by the co-venturer or goods taken by him and is
credited with assets given by him for the venture and expenses
paid by him.

Memorandum Joint Venture Account: The profit or loss of the

venture is computed in an account which is not part of the
double entry mechanism and is termed as Memorandum Joint
Venture Account.
METHODS OF RECORDING JOINT VENTURE
TRANSACTIONS

Joint venture accounts can be kept under any of the

following three methods :
1. Each co-venturer records the transactions

2. Memorandum Joint Venture Account Method

3. Separate Books
 1. Each co-venture records the transactions
Under this system the "Joint Venture Account"
is opened and debited with the value of goods
bought and expenses incurred. Cash account
or the party which has supplied the goods or
incurred the expenses will be credited. When
the sales proceeds are received, the party
receiving it, will debit cash (for Debtors)
account and credit the Joint Venture Account.
The other parties will debit the recipient party
and credit the Joint Venture Account.
 1. Each co-venture records the transactions
Sometimes, a bill of exchange is drawn by one
of the parties and is discounted. In such a case
the discount on the bill should be charged to
Joint Venture Account. Joint Venture Account
will now show the profit or loss on trading.
Under this system, each (Joint venturer)
partner will open two accounts
i.e. (i) Joint Venture Account
(ii) The account of other parties..
• Journal Entries : The following journal entries will be passed
1) For Investment in Joint Venture
Joint Venture A/c Dr.
To Cash/Inventory A/c or Purchase A/c
(Being the amount of goods supplied or cash put in for Joint Venture)

2) As goods are supplied by the Co-venturer or cash is invested in Joint

Venture by him
Cash A/c (For cash sent) Dr.
Joint Venture A/c Dr.
To Co-venturer A/c (for goods sent)
(Being goods supplied or cash invested by the other partner)
3. For recording sale of joint venture goods
Cash A/c Dr.
To Joint Venture A/c
(Being Sale of goods made)

4. On sale of joint venture goods by the other party

Co-Venturer A/c Dr.
To Joint Venture A/c
(Being Joint Venture goods sold by the other partner)
5. a) For receipt of Bill of Exchange from the other
partner
Bills receivable A/c Dr.
To Co-Venturer A/c
(Being bill receivable received)
b) For discounting the bill of exchange
Bank A/c Dr.
Joint Venture A/c Dr.
To Bills Receivable A/c
(Being bill discounted and discounting charges debited
to Joint Venture A/c).
6. Entries in the books of other partner Acceptor's
books regarding
Acceptance of bills of exchange
Co-venturer A/c Dr.
To Bills Payable A/c
(Being acceptance given)
7. On discounting the bills of exchange by other party
i.e. drawer
Joint venture A/c Dr.
To Co-Venturer A/c
8. On commission charged under Joint Venture
Joint Venture A/c Dr.
To commission A/c
9. On Commission charged by other partner
Joint Venture A/c Dr.
To Co-Venturer A/c
(Being Commission on sale effected by other partners)
10. When some products are left unsold and transferred
to his own stock.
Purchase A/c Dr.
To Joint Venture A/c
(Being the unsold goods taken)
11. If the other partner has taken the unsold goods, the
entry will be:-
The Co-venturer A/c Dr.
To Joint Venture A/c
(Being the unsold goods taken by the other partner)
12. Now Joint Venture Account will be closed. If it
shows profit then the profit will be divided in the
agreed ratio. The entry will be
Joint Venture A/c Dr.
To P & L A/c (own share)
To Co-venturers A/c (their share)
(Being the profit on Joint Venture shared by the parties)
 Format of Two Accounts to be Maintained
Joint Venture Account
Dr. Particulars Particulars Cr.

To Cash A/c (purchased) By Cash A/c

To Cash A/c (Expenses) By Co-Venturer A/c
To Purchase A/c (Goods Take over)
(Material supplied)

To Outstanding Expenses A/c

To Profit transferred to:

Profit & Loss A/c

Co-venturers A/c
 Co Venture’s Personal Account
Dr. Particulars Particulars Cr.

To Joint Venture A/c XXX By Bills Receivable XXX

(Goods Taken over)
By Joint Venture A/c XXX
To Cash A/c XXX
Illustration - 1
X and Y entered into Joint Venture to sell a
consignment of timber sharing profits and losses
equally. X provides timber from stock at mutually
agreed value of $. 50000. He pays expenses
amounting to $. 2500. Y incurs further expenses on
cartage, storage of $. 6500 and receives cash for sales
$. 30,000. He also takes over goods to the value of $.
10000 for his own use. At the close, X takes over the
balance stock in hand which is valued at $. 11000.
Pass Journal Entries to record the above transactions
and open the necessary ledger accounts in the books
of X and Y.
Journal entries in the Books of X
Joint Venture A/c Dr. 52,500
To Purchase A/c 50,000
To Bank A/c 2,500
(Being timber provided and expenses incurred)
Joint Venture A/c Dr. 6,500
To Y 6,500
(Being expenses incurred by Y)
Y Dr. 30,000
To Joint Venture a/c 30,000
(Being the sale proceeds by Y)
 Y Dr. 10,000
To Joint Venture A/c 10,000
(Y takes over the goods for his use)
Purchase A/c Dr. 11,000
To Joint Venture A/c 11,000
(Being unsold goods taken)
Y Dr. 4,000
Profit and Loss A/c Dr. 4,000
To Joint Venture A/c 8,000
(Being the loss on Joint Venture shared equally)
Bank A/c Dr. 37,500
To Y 37,500
(Being draft received from Y)
 Joint Venture Account
Dr. Particulars Amount Particulars Amount Cr.
To Purchase 50,000 By Y (Sale Proceeds) 30,000

To Bank (expenses) 2,500 By Y (Goods for his use)10,000

To Y (expenses) 6,500 By Purchases (goods) 11,000

By Y (loss) 4,000

By Profit and Loss A/c 4,000

(Ratio being 1:1)

59,000 59,000
 Y’s Account
Dr. Particulars Amount Particulars Amount Cr.
To Joint Venture (Sale) 30,000 By Joint Venture (Expenses)
6,500
To Joint Venture (goods) 10,000
By Bank 37,500
To Joint Venture (Loss) 4,000 (Final Settlement)

44,000
44,000
Journal entries in the Books of Y
Joint Venture A/c Dr. 52,500
To X A/c 52,500
(Being goods supplied and expenses incurred)
Joint Venture A/c Dr. 6,500
To Bank A/c 6,500
(Being expenses incurred by Y)
Bank Dr. 30,000
To Joint Venture A/c 30,000
(Being the receipt of sale proceeds)
Drawing A/c Dr. 10,000
To Joint Venture A/c 10,000
(Being the goods withdrawn for own use)
 X Dr. 11,000
To Joint Venture A/c 11,000
(Being the taking over the balance stock in hand by X)
X Dr. 4,000
Profit and Loss A/c Dr. 4,000
To Joint Venture A/c 8,000
(For sharing of loss in equal ratio)
X Dr. 37,500
To Bank 37,500
(Being the draft remitted X)
 Joint Venture Account
Dr. Particulars Amount Particulars Amount Cr.
To X(Goods Supplied) 50,000 By Bank (Sale ) 30,000

To X (expenses) 2,500 By Drawings of goods 10,000

To Bank (expenses) 6,500 By (Balance goods taken by X)

11,000

By Y (loss) 4,000

By Profit and Loss A/c 4,000

8,000
59,000
(Loss)
59,000
 X’s Account
Dr. Particulars Amount Particulars Amount Cr.
To Joint Venture (Sale) 11,000 By Joint Venture 52,500
(Goods and Expenses)
To Joint Venture A/c 4,000
(Loss)

To Bank 37,500

52,500 52,500
 2. Memorandum Joint Venture Account Method
In the method discussed above each co-
venturer records all transactions relating to
the joint venture in the Joint Venture Account
opened in his books. But, under the
Memorandum Joint Venture Account Method
each co-venturer will record only those
transactions relating to the joint venture
which are directly concerned with him and
not those of others.
Under this method each co-venturer opens a Joint Venture
Account including the name of the other co-venturer. The
heading of the account is 'Joint Venture with (name of
coventurer) Account'. The Joint Venturer with (name of
co-venturer)Account is a personal account and it does
not show any profit or loss. The following entries will be
made in this account :
i) Joint Venture with..........................Account Dr.
To cash/Bank/Creditors Account
(Being payments by cheque or cash or liabilities incurred on Joint
Venture).
ii) Cash/Debtors Accounts Dr.
To Joint Venture............Account
(Being sale Cash/Credit made on account of Joint Venture)
b) A separate 'Joint Venture Memorandum Account' is prepared to
ascertain profit or loss in Joint Venture. It is just like profit and
loss account, all the expenses and losses are debited to it and all
incomes and gains are credited to it. All the items of personal
accounts will also appear on the same side of 'Joint Venture
Memorandum Account'. The balance of Joint Venture
Memorandum Account shows profits or loss on joint venture
and each party makes an entry for his share of profits or losses.
The journal entry is as under :
Joint Venture with.................Account Dr.
To Profit and Loss Account
(Being profit earned on Joint Ventures) Or
Profit and Loss Account Dr.
To Joint Venture with................Account
(Being loss effected on Joint Venture)
Illustration - 2
A and B entered into a Joint venture involving the buying and
selling of old railway material with an agreement to share profit
or loss equally. (The amount is in $. Hundreds). The cost of the
material purchased was $.30,000 which was paid by A, who
drew bill of $. 20,000 on B at three months' period. The bill was
discounted by A at cost of $. 160. The transactions relating to
the ventures were:
i) A paid $. 200 for carriage, $. 600 for commission on sales and
$.100 for travelling expenses
ii) B paid $. 80 for travelling expenses and $.120 for sundry
expenses
iii) Sales made by A amounted to $. 21,400 less allowance for
faulty goods $. 400 and
iv) Sales made by B were $. 15,000.
The remaining goods were retained by A and B for their
private use and these were charged to them as $.
1600 and $. 2400 respectively. A was credited with
sum of $. 300 to cover the cost for warehousing and
insurance. The expenses in connection with the
discounting to the bill were to be treated as a charge
against the venture. Prepare the ledger accounts in
the books of both the parties and also the
memorandum joint venture account..
 Memorandum Joint Venture Account

Dr. Particulars Amount Particulars Amount Cr.

To Materials 30,000 By Sales (21000 + 15000) 36,000
To discount on Bill 160 By stock taken by
To carriage 200 A 1600
To Commission 600 B 2400 4000
To Travelling (100+80) 180
To Sundry expenses 120
To Warehousing expenses 300
To Profit
A: 4220
B: 4220 8,440

40,000
40,000
 In the books of A
Joint Venture with B
Dr. Particulars Amount Particulars Amount Cr.
To Bank (material) 30,000
X’s By Bank (sales)
Account 21,000
To discount on bill 160 By Stock taken 1,600
To Bank
Carriage 200 By Balance c/d 12,980
Commission 600
Travelling exp. 100
Warehousing 300 1,200
To Profit & Loss A/c 4,220

35,580 35,580
To Balance b/d 12,980
 In the books of B
Joint Venture with A
Dr. Particulars Amount Particulars Amount Cr.
To Bank By Bank (Sales)
X’s Account 15,000
Travelling Exp. 80 By Stock taken 2,400
Sundry Exp. 120 200

To Profit & Loss A/c 4,220

To Balance c/d 12,980

17,400 17,400
Sometimes the co-venturers invest money in Joint
venture business and receive back the amounts on
different dates. It is quite usual for them to agree to
calculate interest at a certain rate. Each co-venturers
is entitled to receive interest on the amounts invested
by him and pay interest on the amounts received by
him. Only net interest receivable from or payable to
the conventurer is recorded in the joint venture
account. Thus, the net amount of interest is also
taken into amount before ascertaining the profit or
loss on joint venture.
 3. Separate Books
Recording of transactions is done not in books
of parties but in a separate set of books. Co-
venturer first contributes to a common bank
account and then all payments are made
through it. Accounts of parties are also
opened. Profit or Loss on Joint Venture is
transferred to the respective partner's
accounts in due ratios. Finally, the books are
closed with the close of the venture..
Three main accounts opened under separate set of accounts
are:
1. Joint Venture Account
2. Joint Bank Account, and
3. Personal Capital Accounts of Joint Venturers.
The following entries will be passed under this system

1) When cash is invested by Joint Venturer

Joint Bank A/c Dr.
To Capital Accounts of Joint Venturers.
(Being cash invested by Joint Venturers and deposited into
the Bank)
2. When purchases are made for joint venture out of
bank A/c
Joint Venture A/c Dr.
To Joint Bank A/c
(Being Purchase made for Joint Venture)
3) When expenses are incurred for joint venture out of
Bank A/c Dr.
Joint Venture A/c Dr.
To Joint Bank A/c
(Being expenses incurred for Joint Venture Account)
4. When sales are made
Joint Bank A/c Dr.
To Sales
(Being sales made and receipts from sales deposited into Bank)

5) When some products are left unsold and are taken

away by Joint Venturers
Capital accounts of Joint Venturer A/c Dr.
To Joint Venture A/c
(Being unsold stock taken by Joint Venturers)
6 (a). For Profit on Joint Venture account
Joint Venture A/c Dr.
To capital accounts of Joint Venturers A/c
(Being profit earned on Joint Venturers)

6 (b). The reverse entry will be passed in cases of

losses on Joint Venture.
X and Y enter into joint venture to underwrite public issue
of Reliance Ltd. They agree to guarantee the
subscription at par on 1,00,000 shares of $. 10 each of
Reliance Ltd. and sharing profits and losses in the ratio
of 2:3. The terms with the company are 4.5 %
commission payable in cash and 6,000 fully paid shares
of the company. They agreed to pay expenses in
connection with the issue of shares. The expenses
incurred are advertisement $. 5,000; Printing and
stationery $. 2,000 and postage $. 600. All expenses are
paid by X. The public subscribed to 88,000 shares only.
The remaining shares under the agreement were duly
taken by X and Y who provided the necessary cash
equally.
The commission is received in cash and is shared by
the co-venturers in the ratio of 4:5. The entire
holding of the joint venture is then sold in the market
through brokers as follows : 25% at a price of $. 9
per share, 50% at a price of $. 8.75 per share, 15% at
a price of $. 8.50 per share and the remaining 10% is
taken over by A and B equally at an agreed price of
$. 8 per share.Prepare the Joint Venture Account,
Joint Bank Account, Shares Account and the
Accounts of X and Y showing the final statement.