Joint Venture Worked Example – No Separate Books of Accounts

Question 8

J–½
R–½

Raj expense

Raj expense

John expense

Raj income

John expense

Raj expense
Inventory taken

Raj Income
 Memorandum Joint Venture Account
Purchases (900 + 200) 1100 Revenue (1850 + 340) 2190
Carriage (90 + 50) 140 Inventory taken 60
Rental 100
Advertising 70
Repairs (160 + 120) 280
Profit on joint venture
- Raj (1/2 X 560) 280
- John (1/2 X 560) 280
2250 2250

OR
Statement to calculate profit or loss from the venture
Revenue 2190
Less purchases (1100)
Less carriage (140)
Less Rental (100)
Less advertising (70)
Less repairs (280)
Add inventory taken 60
Profit on joint venture 560
- Raj (1/2 X 560) 280
- John (1/2 X 560) 280
560
 Joint venture account with John
Purchases 900 Revenue (1850 + 340) 2190
Carriage 90
Repairs (160 + 120) 280
Profit on joint venture 280
Cash paid to John 500
Cash paid to John ?? 140
2190 2190

Joint venture account with Raj

Rental 100 Inventory taken 60
Advertising 70 Cash received from Raj 500
Purchases 200 Cash received from Raj ?? 140
Carriage 50
Profit on joint venture 280
700 700

In a joint venture one person may have the skills and another the contacts. In
this instance, Raj has the selling contacts and car repair bicycles whereas John
has the ability to pay the overheads.
Expenses on bicycles bought by Raj:
Purchases (900) + Carriage (90) + Repairs (160) = $1150
Revenue on Raj bicycle = 1 850
Profit on Raj bicycles = 1850 – 1150 = $700
Profit per bicycle = 700 / 12 = $58.33

Expense on bicycles bought by John:

Purchases (200) + carriage (50) + repairs (120) = 370
Sold for $400 (340 + 60)
Profit on John bicycle = 400 – 370 = $30
Profit per bicycle = 30 / 4 = $7.50

Raj profit per bicycle is greater than John profit per bicycle. It is more
beneficial Raj to work on his own rather than entering into a partnership with
John as he will not gain by working with Raj.