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Methods to Record Transactions in Joint

Venture (With Journal Entries)
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Sometimes, a completely separate set of books is opened to record the joint venture
transactions, but generally separate books are not opened and each party records the
transactions in its own books. When such is the case, each party opens a Joint Venture
Account and account(s) of the other party (or parties).
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The Joint Venture Account is debited with the value of goods or stores bought or used on
account of the joint venture. It is also debited with expenses incurred. The credit will be to
the Trading Account or Cash Account or to the party which has supplied the goods or
incurred the expenses. Thus, if there is a joint venture between A and B and (i) A forwards LATEST

goods to B worth, say, Rs 40,000 to be sold by B on joint account, and (ii) A incurs an Importance of Advertising
expenditure of Rs 3750.
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The entry in A’s books will be: Employee Training: Objectives, Process, Steps and
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When the sale proceeds are received, the party receiving it will debit Bank (or Sundry
Debtors) and credit the Joint Venture Account. The other party will debit the party which
has received the sale proceeds and credit the Joint Venture Account. Sometimes, a bill of
exchange is drawn by one of the parties on the other and is then discounted. This is
generally done when one of the parties only makes the investment. In such a case, the
discount on the bill should be charged to the Joint Venture Account. The Joint Venture
Account will now reflect profit or loss, which must be transferred to the Profit and Loss
Account and the other party’s account in agreed proportions.

Illustration 1:

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Adarji and Bomanji were partners in a joint venture sharing profits and losses in the
proportion of four-fifths and one-fifth respectively. Adarji supplies goods to the value of Rs
50,000 and incurs expenses amounting to Rs 5,400.

Bomanji supplies goods to the value of Rs 14,000 and his expenses amount to Rs 800.
Bomanji sells goods on behalf of the joint venture and realizes Rs 92,000. Bomanji is
entitled to a commission of 5 per cent on sales.

Bomanji settles his account by bank draft. Give the journal entries and the necessary
accounts in the books of Adarji and only the important ledger accounts in the books of
Bomanji.

Alternative Method:

An alternative to the above method is to make out the Joint Venture Account on
memorandum basis, just to find out the profit or loss made but not as part of ledger. The
goods sent or expenses incurred on joint venture are debited to the account of the other
party. The account may be styled as ‘…. in Joint Venture Account.’

No entry is passed for goods supplied or expenses incurred on joint venture by the other
party. That account is debited with one’s share of the profit made on the joint venture
(ascertained by the Memorandum Joint Venture Account), crediting the Profit and Loss
Account. The other party will be credited with one’s share of loss, if any. The party receiving
the sales proceeds on joint venture must credit the other party with the full amount.

The solution of the above illustration will be as follows:

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In the books of Adarji, the account with Bomanji will be as follows:

Illustration 2:

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Aran and Varan entered into a joint venture to purchase, recondition and sell secondhand
cars. Aran purchased for cash 50 cars at an average price of Rs 70,000 during the period
from 1st October, 2011 Jo 31st March, 2012.

Varan,’ during the same period reconditioned the cars by spending the
following amounts:

Illustration 3:

Maneck and Nari decided to work in partnership the following scheme,

agreeing to share profits as under:

Maneck to take 3/4 share

Nari to take 1/4 share

They guaranteed the subscription at par of 10,00,000 shares of Rs 10 each in Shela Ltd. and
to pay all expenses up to allotment in consideration of the Shela Ltd. issuing to them
50,000 shares (other than 10,00,000 shares issued to public) of Rs 10 each, fully paid.

Maneck introduced cash into the business to meet the following expenses:

Applications fell short of the 10, 00,000 shares by 30,000 shares. Nari introduced further
cash on joint account for the said 30,000 shares. This amount was utilized to subscribe the
said 30,000 shares and paid to the company. The guarantee having been fulfilled, Shela
Ltd. handed over to Maneck and Nari 50,000 shares. The partnership firm sold all the
shares. Nari received the sale proceeds of 20,000 shares amounting to Rs 1, 80,000 and
Maneck of the remaining 60,000 shares amounting to Rs 5, 00,000. Give the necessary
accounts in the books of both the parties.

Solution:

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In the books of Maneck, the account with Nari will be as follows:

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