DPA 6013

FINANCIAL ACCOUNTING 4
CHAPTER 1 : JOINT VENTURE ACCOUNT
 LEARNING OUTCOME:

1.1 Understand the nature of joint venture

business
1.2 Construct the accounting records for joint
venture business
1.1 UNDERSTAND THE NATURE OF JOINT
VENTURE BUSINESS

1.1.1 DEFINITION OF JOINT VENTURE

 A joint venture is a business agreement between two or more business to
carry out a business temporarily.
 It involves a venture which is formed specifically for a particular business.
 Profit or losses will be divided according to an agreed ratio between the
parties involved.
 A joint venture can provide an advantage to business in the same industry.
 It can reduce competition and increase cooperation between the parties, as
well as enhance profits for all involved.
1.1 UNDERSTAND THE NATURE OF JOINT
VENTURE BUSINESS
1.1.2 DIFFERENCES BETWEEN JOINT VENTURES AND PARTNERSHIP
Joint Venture
1 A joint venture is a cooperative
agreement between 2 or more business
purpose
2 A joint venture involves a certain
period of time until the goals of the
said joint venture are achieved
3 In a joint venture, there is a sharing of
skills, technology that can be used to
develop the business
4 In a joint venture, the business owners
can maintain their own organization’s
identity and make their own decisions,
as the venture involves two or more
separate business
Partnership
A partnership is a combination of a few
individuals to run a business together
A partnership involves a long period of
time, depending on the business and
the partner’s capabilities
A partnership comprises business
partners who share the goal of making
profits
The owners in a partnership are bound
to make decisions together
1.2 CONSTRUCT THE ACCOUNTING
RECORDS FOR JOINT VENTURE BUSINESS

NO SEPARATE BOOKS ARE KEPT TO RECORD THE TRANSACTIONS

 Based on this method, each business will record their own transactions.
 Example : a joint venture between Hazim and Hasif, where they share profits
and losses equally. Hazim will provide for his joint account, and so will Hasif
for his.
Hazim – Joint Venture with Hasif (in Hazim’s book)
Hasif – Joint Venture with Hazim (in Hasif’s book)
 Step 1 : Apply the Joint Venture Account Format
 Journal Entries:
DR Items incurred for business xx
CR Joint Venture cash book xx
DR Joint Venture cash book xx
CR Items taken out from business xx
In Hazim’s Book:
Joint Venture with Hasif
Item incurred for xx Item taken out from xx
business (expenses paid, business (sales, cash
purchases of goods) taken [drawings])

In Hasif’s Book:
Joint Venture with Hazim
Item incurred for xx Item taken out from xx
business (expenses paid, business (sales, cash
purchases of goods) taken [drawings])
 Step 2 : Prepare the Memorandum of Joint Venture Account
 Journal entries:
Transaction Entries in Joint Venture Account
DEBIT CREDIT
1)Expenses paid by business Joint Venture Acc Cash/Bank Acc
2)Cash/Cheque received Cash/Bank Acc Joint Venture Acc
3)Commission paid Joint Venture Acc Cash/Bank Acc
4)Profit from Joint Venture Joint Venture Acc Profit & Loss Acc

Hazim & Hasif

Memorandum Of Joint Venture Account
Items incurred for business xx Items taken out from xx
(expenses paid, purchases) business (sales, cash
taken [drawing])
Nett profit
Hazim (1/2) xx
Hasif (1/2) xx xx
xx xx
 Step 3: Transfer the Profits or Losses to the Individual’s Book Account
In Hazim’s Book:
Joint Venture with Hasif
Item incurred for xx Item taken out from xx
business (expenses paid, business (sales, cash
purchases of goods) taken [drawings])
Profit from joint venture xx Balance c/d a
xx xx
Balance b/d a Settlement from Hasif a
In Hasif’s Book:
Joint Venture with Hazim
Item incurred for xx Item taken out from xx
business (expenses paid, business (sales, cash
purchases of goods) taken [drawings])
Profit from joint venture xx
Balance c/d a
xx xx
Settlement to Hazim a Balance b/d a
Example 1:
Mysarah and Reen entered into a joint venture involving a bakery. All
transactions are in cash terms and the profits are to be shared equally. The
following are the transactions which took place:
Mysarah supplied raw materials costing RM2,000
Reen rented a shop paying rental of RM300
Mysarah paid labour costs of RM800
Reen received cash from the sales proceeds of RM4,600
Mysarah paid for general expenses costing RM250
Reen paid for packaging materials costing RM560
You are required to :
a) Prepare Joint Venture Account in the book of Mysarah and Reen
b) Prepare Memorandum Joint Venture Account for Mysarah and Reen for the
month ended xx/xx/xx
Example 2:
Commission received by traders
Ross and Taufiq started a joint venture for an antique business. Ross will make
purchases while Taufiq will provide the workforce. Profit and losses will be
distributed at a ratio of 2:1. 10% commission will be given to the business for the
sales achieved. The transactions that occurred are as follows:
Purchases (Ross) RM1,000
Sales (Ross) RM3,200
Labour cost (Taufiq) RM800
Therefore, Ross is entitle to a commission of RM320.
You are required to :
a) Prepare Joint Venture Account in the book of Ross and Taufiq
b) Prepare Memorandum Joint Venture Account for Ross and Taufiq for the month
ended xx/xx/xx