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ACCOUNTING FOR JOINT VENTURES
MEANING -: ØA VERY SHORT DURATION BUSINESS. . . . ØA TEMPORARY PARTNERSHIP WITHOUT THE USE OF A FIRM NAME. . ØTO CARRY OUT A PARTICULAR BUSINESS PLAN. . . . ØTO CONTRIBUTE CAPITAL AND TO SHARE PROFIT OR LOSSES. . . . ØTHE PARTIES ARE KNOWN AS COVENTURERS. . . .
MEANING A joint venture is a temporary partnership without use of firm name, limited to carrying out a particular business pl in which the persons agree to contribute capital and to share profits or losses.
EXAMPLE- TO APPRETAITE IT’S NATURE MR RAM AND SHAM ENTERD INTO A JOINT VENTURE AND DECIDED TO CONTRIBUTE TO RS 100000 EACH AND TO INVEST THE SAME IN SALE AND PURCHASE OF RICE. THEY PRCHASED RICE COSTING RS 180000 AND INCURRED RS 20000 AS TRANSIT COST. THE ENTIRE RICE WAS SOLD BY THEM FOR RS 300000. THUS THEY MADE APROFIT OF RS 100000. THEY SHARED THE PROFIT IN AGREED RATIO 3: 2. THUS RAM WILL GET RS 60000 AND SHAM WILL GET RS 40000 AS A SHARE OF PROFIT. IN THE ABOVE EXAMPLE -: §THEY BOTH ARE CO-VENTURERS. § VENTURE WAS FOR SALE OF CERTAIN QUANTITY. §VENTURE WOULD BE OVER ON SALE. §ACCOUNTING IS NECESSARY TO FIND PROFIT / LOSS.
AREAS OF BUSINESS Ø JOINT CONSIGNMENT OF GOODS. . . Ø SPECIAL SHARES. . . Ø UNDERWRITING OF SHARES OR DEBENTURES. . . Ø CONSTRUCTION OF A BUILDING. . . Ø DISTRIBUTION OF GOODS. . . . Ø SALE AND PURCHASE OF PROPERTIES. . . .
CHARACTERSTICS a) IT IS AN AGREEMENT BETWEEN TWO OR MORE PERSONS. . . b) IT IS A TEMPORARY PARTNERSHIP AND COMES TO END AFTER COMPLETION. . . c) THE PARTNERSHIP IS FOR A SPECIFIC VENTURE. . . d) THE PARTNERSHIP IS WITHOUT THE USE OF A FIRM NAME. . . . e) THE MAIN PURPOSE OF A JOINT VENTURE IS TO MAKE PROFIT. . . . f) CO- VENTURERS SHARE PROFIT / LOSSES AT AN AGREED RATIO. . . .
DISTINCTION JOINT VENTURE 1. 2. 3. 4. 5. 6. IT IS CARRIED ON WITHOUT A FIRM’S NAME. PARTIES ARE CALLED COVENTURERS. IT IS GENERALY LOCAL. IN IT MINOR IS GENERALY NOT ADMITTED. NO ENACTMENT IS APPLICABLE. NO LIMIT OF MEMBERS. PARTNERSHIP 1. 2. 3. 4. 5. 6. IT IS CARRIED ON WITH FIRMS NAME. PARTIES ARE CALLED PARTNERS. LOCATED AT DIFF PLACES. MINOR CAN BE ADMITTED ONLY FOR BENEFITS. INDIAN PARTNERSHIP ACT 1932 IS APPLICABLE. LIMITED TO 20 (ORDINARY TRADE)
BENEFITS i) SHARING OF RISK: The risk in case of joint venture business will be borne by all the co-ventures as profit or loss in predetermined ratio. ii) FINANCIAL RESOURCES: Adequate financial resourc will be provided by two or more persons. iii) SUFFICIENT EXPERIENCE: More people of different skills and experience can come together to under take costly and profitable projects.
METHODS OF MAINTAINING ACCOUNTS MAINTAINCE OF JOINT VENTURE A/C NO SEPARETE OF BOOKS ARE MAINTAINED SEPARETE SET OF BOOKS MAINTAINED JOINT VENTURE A/C JOINT BANK A/C EACH CO-VENTURE KEEPS RECORD OF ALL TRANSCATION TWO TYPES EACH CO-VENTURE KEEPS RECORD OF OWN TRANSCATION JOINT VETURE A/C MEMORANDUM JOINT VENTURE A/C CO-VENTURE A/C JOINT VENTURE WITH CO- VEN TURE A/C
METHODS OF RECORDING a) When one of the co-venture is appointed to manage the joint venture. b) When separate set of books is not maintained. c) When separate set of books is maintained. d) When it is recorded through the memorandum joint venture account.
a) WHEN ONE OF THE CO-VENTURE IS APPOINTED This method is followed when most of the buying and selli on account of joint venture is managed by one co-venture. Other co-venture are only to contribute their share of investment. Entries to be recorded in this method are as follows. i) On receipt of cash from other co-venturers. Cash A/C Dr. To Other co-venturers A/C II) On purchase of goods Joint venture A/C Dr.
iii) On supplying of goods out of his stock Joint venture A/C Dr. To purchase A/C iv) On goods supplied by other co-venturers Joint venture A/C Dr. To other co-venturers A/C v) On expenses incurred Joint venture A/C Dr. To cash A/C vi) On sale of goods Cash A/C Dr. To Joint venture A/C vii) If working partner gets commission Joint venture A/C Dr. To commission A/C
xii) On completion of joint venture Other Co-venturers A/C To cash or bank A/C Dr.
viii) If unsold stock is taken over by working partner Goods A/C Dr. To Joint venture A/C ix) If unsold stock is taken over by other co-venture Other co- venturers A/C Dr. To Joint venture A/C x) In case of profit Joint venture A/C Dr. To Profit and loss A/C To Other co-venturers A/C xi) In case of loss Profit and loss A/C Dr. Other co-venturers A/C Dr. To Joint venture A/C
EXAMPLE Ram, Mohan and Rahim were partners in a joint venture, each contributing Rs. 5000 each. Ram purchased goods for Rs. 13000 and also supplied goods worth Rs. 1000 from his stock. Rahim also supplied goods to the value of Rs. 1500 from stock and his expenses in connection with the supplying of goods on account of joint venture amounted to Rs. 50. Ram paid Rs. 250 for expenses in connection with the joint venture. Ram sold goods on behalf of joint venture and realised Rs. 20800. ram was entiled to a commission of 5% on sales. Unsold goods amounting to Rs. 500 were taken over by Mohan.
Goods purchased RAM’S JOURNAL Bank A/C Dr. To Mohan A/C To Rahim A/C (being amount received from Mohan and Rahim Joint venture A/C Dr. To Bank A/C (being goods purchased ) Joint venture A/C Dr. To Goods A/C (Being goods supplied out of Stock ) Rs. 10, 000 13, 000 1, 000 Rs 10, 000 13, 000 1, 000
Joint venture A/C Dr. To Goods A/C (Being goods for Rs. 1500 Supplied and expenses Rs. 50 Incurred by Rahim) Joint venture A/C Dr. To Bank A/C (Being expenses incurred) Bank A/C Dr. To Joint venture A/C (Being goods sold) Joint venture A/C Dr. To Commission A/C (Being 5% commission ) 1, 550 20, 800 1, 040 1, 55 25 20, 8 1, 0
Mohan A/C Dr. To Joint venture A/C (Being unsold goods taken by Mohan Joint venture A/C Dr. To profit and loss A/C To Mohan A/C To Rahim A/C (Being profit on joint venture) Mohan A/C Dr. Rahim A/C Dr. To Bank A/C (Being amount remitted to Mohan and Rahim) 500 4, 460 5, 987 8, 037 500 1, 48 14, 0
WHEN A SEPARATE SETS OF BOOKS NOT MAINTAINED Under this method, each co-venturer opens a joint venture Account and the personal accounts of each co-ventures. 1. Each co-venturer debits joint venturer account with the cost of goods purchased and expenses incurred. The credit Is given to the bank or to the creditors account. 2. Each co-venturer also debits joint venturer account and Credits the account of other co-venturer with the cost of
Are sold by the other co-venturer, personal account of the Other co-venturer is debited with the amount of sale. 4. When commission is receivable by the co-venturer, join Venture account is debited and commission account is Credited with the amount of the commission. If the commission is receivable by the other co-venturer, joint venture account is debited and personal account of the other co-venturer is credited. 5. sometimes, remittance is received by one co-venturer b Getting the bill discounted accepted by the other co-venturer. This is done when one of the co-venturers makes the investment on account of joint venture. In such case, loss on account of discounting the bill should be transferred to joint venture account because loss on accou Of discount is to be borne by all the co-venturers.
Entries in this connection are as follow : In drawer’s books (i) Bills receivable A/C Dr. To other co-ventuer (being acceptance received) (ii) Bank account Dr. Discount account Dr. To bill receivable account (being bill discounted) (iii) Joint venture account Dr. To discount account (being transfer of discount)
In acceptor’s book Other co-venturer Dr. To bills payable account (being acceptance given) Joint venture account Dr. To other co-venture (being transfer of discount) 6. If unsold stock is taken by one-co-venturer, Goods account Is debited and joint venture account is credited. If unsold goods are taken by the other co-venturer, personal account of the other co-venturer is debited and joint venture account is credited. 7. Balance in joint venture account will represent profit or loss and will be shared by all-coventurers in the agreed ratio or in the absence of any agreement equally.
a profit, each partner debits joint venture account and credits profit and loss account with his own share and the other coventurer’s accounts with their share of profit. In case of a loss, the entries will be reversed. 8. The balance in the personal account of any coventurer will show the amount due from or due him.
EXAMPLE Ram and Rahim enter into a joint venture to take a building Contract for Rs. 24, 000. They provide The following Information regarding the expenditure incurred by them : Ram Rahim Rs. R Materials 6, 80, 000 5, 00 Cement 1, 30, 000 1, 70, 000 Architect’s fees 2, 70, 0 Licence fees 1, 000 Plant 50, 0 Plant was valued at Rs. 1, 000 at the end of the contract an Agreed to take it at that value. Contract amount of Rs. 24, 000 was received by Ram. Profit or losses to be
Shared equally. Show that following i) Joint venture account and Rahim’s account in the books o Ram; and ii) Joint venture account and Ram’s account in the books Rahim Assuming that balance due has settled between the venture Rs. To Bank A/C 24, 000 (materials, 1, 000 Cement and In the BOOKS Ram Joint venture A/C Rs. 9, 10, 000 By Bank A/C By Rahim’s A/C(Plant)
To Net Profit transferred to: Rahim’s A/C Profit & loss A/C (In equal ratio) 25, 000 To joint Venture A/C(Plant) To Bank A/C 4, 000 25, 000 Rahim’s Account Rs. 1, 000 By joint venture A/C(Sundries) 12, 90, 000 By Joint Venture A/C (Profit) 13, 90, 000 Rs. 11, 90, 00 2, 00, 0 13, 90, 00
rr 32 In the Books of Rahim Joint venture Account Rs. 9, 10, 000 By Ram’s A/C (Contract amount To Ram’s A/C (Material, cement and architect’s fee) To Bank A/C 11, 90, 000 By Plant A/C (Material, cement, wages, licence fee and plant) To Net profit 4, 000 25, 000 R 24, 00, 0 1, 00, 0 25, 00, 0
Ram’s Account To joint venture A/C (Contract Rs. 24, 000 By joint venture A/C (Sundries) By joint venture A/C (Profit) By Bank A/C 24, 000 Rs 9, 10, 00 2, 00, 0 12, 90, 0 24, 00, 0
WHEN A SEPARATE SETS OF BOOKS In IS this. KEPT method, individual co-venturer makes a record in th Individual books but a complete set of double entry books Is used for writing up joint venture transactions. Under this Method, a joint bank account is opened, the co-venturers to Joint venturer pay their share of investment into this accou And the payments on the account of joint venture also Recorded in this account. Account of the co-venturers are also opened. Entries to be recorded in this method are as follows: 1. When the amount is contributed by the co-venturers. Joint bank A/C Dr. To other co-venture
2. When goods are purchased joint venture A/C Dr. To joint bank A/C (If purchased on cash) To seller’s A/C (If purchased on credit) 3. For expenses incurred from joint bank or by coventurer. Joint venture A/C Dr. To joint bank A/C To personal account of co-venture 4. When goods are sold joint Bank A/C Dr. Shares/debentures A/C Dr. To joint venture A/C 5. When shares/debentures are taken over by a coventurer
6. Joint venture there account is closed by transferring the Balance is transferred to all co-venturers in their Profit Sharing ratio. 7. For payment of the amount due to co-venturers. Personal A/C of the co-venturers Dr. To Joint bank A/C It may be noted that there should be no balance in joint ba Account when all payments due on account of joint veture Are made and the amount due to the co-venturers is paid.
EXAMPLE Prabir and Mihir doing business separately as business building contractors undertaken jiontly to build a building For a newly started public company for a contract price of Rs. 10, 000 payable as to Rs. 8, 000 by installments in Cash and Rs. 2, 000 fully paid equity shares of the new Company. A bank is opened in their joint name, prabir by paying Rs. 2, 50, 000 and mihir Rs. 1, 50, 000. They are to share Profit or losses in 2: 1. Transactions were: Paid wages Rs. 3, 000; materials Rs. 7, 000; material
Shares of the company at an agreed valuation of Rs. 1, 60, 0 And mihir taking up the stock of materials at an agreed Valuation of Rs. 30, 000. Prepare joint venture account showing the profit or loss, joint bank account and accoun Of prabir and mihir. Joint Venture Account Rs. To joint venture 10, 000 By joint bank A/C 8, 00 A/C(materials and By shares A/C 2, 00 Wages) By mihir A/C(stock 30, 00 To prabir 70, 000 taken over) To mihir(material) 40, 000
To shares (loss) 11, 50, 000 Rs. To prabir 10, 000 To mihir 80, 000 To joint venture 1, 20, 000 Rs. 40, 000 By loss to : Rs. prabir 80, 000 mihir 40, 000 11, 50, 000 Joint Bank Account Rs. 2, 50, 000 By joint venture. A/C 1, 50, 000 By Prabir Account 8, 000 By mihir Rs. 12, 000 1, 20, 0
To joint venture 2, 50, 000 A/C (Loss) 70, 000 To shares A/C To joint bank A/C 80, 000 By joint bank A/C By joint venture A/C 1, 60, 000 80, 000 Mihir Account 3, 20, 000 Rs. R 3, 20, 000 To joint venture 40, 000 By joint bank A/C 1, 50, 0 A/C (Loss) By joint venture A/C 40, 0 To joint venture A/C 30, 000 To joint bank A/C 1, 20, 000 1, 90, 0
MEMORANDUM JOINT VENTURE ACCOUNT This method is followed when each co-venturer in a joint Venture wants to make a record of joint venture transactio In his books. This method is an alternative of (B) method a Operates as follows: (a) Every co-venturer will open a personal account called joint venture with _ account. The following entries will be recorded in this account : (i) Joint venture with _ A/C Dr. To cash or creditors A/C (Being all the payments or liabilities incurred) (ii) Cash or debtors A/C Dr. To joint venture with _ A/C
(Being sales effected by him) (iii) Joint venture with _ A/C Dr. To goods A/C (Being goods supplied out of his stock) (iv) Joint venture with _ A/C Dr. To Commission A/C (Being commission payable to us on sales) It may be noted that entries that relating to joint venture effecting the co-venturer regarding the joint venture transaction are to be recorded by other co-venture in thei books. Similarly entries effecting other co- venturers will recorded by other co-venturer in their books. (b) In addition to the personal accounts as described abov a memorandum joint venture account is also opened with a view to ascertaining profit or loss. To enable the
Preparation of memorandum joint venture account, each party sends to the other party a copy of the transactions effected by him. Memorandum joint venture account can be compared with a profit and loss account because all expenses and losses are debited to it and all incomes and sales on account of joint venture are credited to it. It may remembered by that the items appearing in the personal accounts of all the co-venturers are entered in the Memorandum joint venture account on the same sides as they appear in the personal accounts. (i) Joint venture with _ A/C Dr. To profit and loss A/C (Being our share of profit) (ii) Profit and loss A/C Dr. To joint venture with _ A/C
EXAMPLE A and B entered into a joint venture account of underwritin the subscription at par of 50, 000 shares of Rs. 10 each of a joint stock company. They agreed to share of profit and los account in the ratio of 3: 5 respectively. The consideration f guaranteeing the subscription was 500 other shares of Rs. 5 each fully paid to be issued to them. The public took up 48, 000 shares and the remaining share the guaranteed issue were taken by A and B who provided cash equally. The entire shareholding of the venture was th sold through other brokers, 60% at a price of Rs. 9. 50 less brokerage 50 paise per share, and the balance were taken over by A and B equally at Rs. 9 per share. The share collec by A.
Give journal entries in the books of A and B A’s Journal Rs. 10, 000 Joint venture with B A/C Dr. To bank A/C (being ½ cash provided for the purchase of 2, 000 shares) Bank A/C Dr. (1) 18, 125 To joint venture with B A/C (being sale of 1, 500 shares @ Rs. 9. 50 less brokerage 50 paise per share) Shares A/C Dr. (1) 2, 250 To joint venture with B A/C Rs 10, 00 18, 12 2, 250
(Being 250 shares taken @ 9 per share) Joint venture with B A/C Dr. To profit and loss A/C (Being 3/5 share of profit) Joint venture with B A/C Dr. To Bank A/C (being payment of amount due to B) 1, 575 8, 800 1, 5 8, B’s Journal Joint venture with A A/C Dr. To Bank A/C (being ½ of the amount provided for the purchase of 2, 000 shares of Rs. 10 each) Rs. 10, 000 10,
Shares A/C Dr. (1) 2, 250 To Bank A/C 2, 250 (Being 250 shares taken @ Rs. 9 per share) Joint venture A/C Dr. 1, 050 To profit and loss A/C 1, 050 (Being 2/5 share of profit ) Bank A/C Dr. 8, 800 To joint venture with A A/C 8, 800 Working(Being Notesreceipt : of amount due (1) total from number A) of shares to be sold on account of joint venture is as follows:
Total number of shares underwritten Less: number of shares subscribed by the public Number of shares purchased Number of shares received as commission 50, 0 48, 00 2, 00 500 2, 50 Number of shares sold @ 9 (Rs. 9. 50 – brokerage 50 paise) = 2, 500 x 60/100 = 1, 500 Number of shares sold @ 9. 25 (Rs. 9. 75 – brokerage 50 pai = 2, 500 x 20/100 = 500 Remaining 500 shares taken by A and B equally @ 9 per share.