CHAPTER ONE: ACCOUNTING FOR JOINT VENTURES

MEANING A joint venture is a temporary partnership without use of firm name, limited
to carrying out a particular business plan in which the persons agree to contribute capital
and to share profits or losses.

AREAS OF BUSINESS 

JOINT CONSIGNMENT OF GOODS.

• SPECIAL SHARES.

• UNDERWRITING OF SHARES OR DEBENTURES.

• CONSTRUCTION OF A BUILDING.

• DISTRIBUTION OF GOODS.

• SALE AND PURCHASE OF PROPERTIES.

CHARACTERSTICS

 IT IS AN AGREEMENT BETWEEN TWO OR MORE PERSONS.

IT IS A TEMPORARY PARTNERSHIP AND COMES TO END AFTER

COMPLETION.

THE PARTNERSHIP IS FOR A SPECIFIC VENTURE.

THE PARTNERSHIP IS WITHOUT THE USE OF A FIRM NAME.

THE MAIN PURPOSE OF A JOINT VENTURE IS TO MAKE PROFIT.

CO- VENTURERS SHARE PROFIT / LOSSES AT AN AGREED RATIO.

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 resources 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

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 selling 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.

12. 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

13. xii) On completion of joint venture Other Co-venturers A/C Dr. To cash or bank A/C

14. 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

15. 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. Record these transactions in Ram’s journal.

16. RAM’S JOURNAL Rs. Rs. Bank A/C Dr. 10,000 To Mohan A/C 10,000 To Rahim A/C
(being amount received from Mohan and Rahim Joint venture A/C Dr. 13,000 To Bank
 A/C 13,000 (being goods purchased ) Joint venture A/C Dr. 1,000 To Goods A/C 1,000
(Being goods supplied out of Stock )

17. Joint venture A/C Dr. 1,550 To Goods A/C 1,550 (Being goods for Rs.1500 Supplied
and expenses Rs.50 Incurred by Rahim) Joint venture A/C Dr. 250 To Bank A/C 250
(Being expenses incurred) Bank A/C Dr. 20,800 To Joint venture A/C 20,800 (Being
goods sold) Joint venture A/C Dr. 1,040 To Commission A/C 1,040 (Being 5%
commission )

18. Mohan A/C Dr. 500 To Joint venture A/C 500 (Being unsold goods taken by Mohan Joint
venture A/C Dr. 4,460 To profit and loss A/C 1,486 To Mohan A/C 1,486 To Rahim A/C
1,486 (Being profit on joint venture) Mohan A/C Dr. 5,987 Rahim A/C Dr. 8,037 To Bank
A/C 14,024 (Being amount remitted to Mohan and Rahim)

19. 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 Goods purchased and expenses incurred by the other co-
venturer on account of joint venture. 3. Cash or purchaser account is debited and joint
venture Account is credited with the amount of sale. If the goods

20. 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, joint
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 by 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 a case, loss on account of discounting the bill should be
transferred to joint venture account because loss on account Of discount is to be borne by
all the co-venturers.
21. 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)

22. 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. If there is

23. 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 co-
venturer will show the amount due from or due him.

24. EXAMPLE Ram and Rahim enter into a joint venture to take a building Contract for
Rs.24,00,000. They provide The following Information regarding the expenditure incurred
by them : Ram Rahim Rs. Rs. Materials 6,80,000 5,00,000 Cement 1,30,000 1,70,000
Architect’s fees - 2,70,000 Licence fees 1,00,000 - Plant - 50,000 Plant was valued at
Rs.1,00,000 at the end of the contract and Agreed to take it at that value. Contract amount
of Rs.24,00,000 was received by Ram. Profit or losses to be

25. Shared equally. Show that following  i) Joint venture account and Rahim’s account in the
books of Ram; and ii) Joint venture account and Ram’s account in the books Rahim
Assuming that balance due has settled between the venturers. In the BOOKS Ram Joint
venture A/C Rs. Rs. To Bank A/C 9,10,000 By Bank A/C 24,00,000 (materials, By
Rahim’s A/C(Plant) 1,00,000 Cement and architect’s fees To Rahim’s A/C 11,90,000

26. Rahim’s Account Rs. Rs. To joint Venture 1,00,000 By joint venture 11,90,000
A/C(Plant) A/C(Sundries) To Bank A/C 12,90,000 By Joint Venture 2,00,000 A/C (Profit)
13,90,000 13,90,000
27. In the Books of Rahim Joint venture Account Rs. Rs. To Ram’s A/C 9,10,000 By Ram’s
A/C 24,00,000 (Material, cement (Contract amount and architect’s fee) To Bank A/C
11,90,000 By Plant A/C 1,00,000 (Material, cement, wages, licence fee and plant) To Net
profit 4,00,000 25,00,000 25,00,000

28. Ram’s Account Rs. Rs. To joint venture 24,00,000 By joint venture 9,10,000 A/C
(Contract A/C (Sundries) By joint venture 2,00,000 A/C (Profit) By Bank A/C 12,90,000
24,00,000 24,00,000

29. WHEN A SEPARATE SETS OF BOOKS IS KEPT  In this method, individual co-
venturer makes a record in this 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 a Joint venturer pay their share of investment into this
account And the payments on the account of joint venture are also Recorded in this
account. Account of the co-venturers are also opened. Entries to be recorded in this
method are as follows: When the amount is contributed by the co-venturers. Joint bank
A/C Dr. To other co-venture

30. 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 co-venturer. 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 co-venturer personal account
of co-venturer To shares/debentures A/C

31. 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 bank Account when all payments due on account of
joint veture Are made and the amount due to the co-venturers is paid.

32. 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.10,00,000 payable as to Rs.8,00,000 by installments in Cash and Rs.2,00,000
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.3,00,000; materials Rs.7,00,000; material Supplied by
prabir from his stock Rs.50,000 and by mihir Rs.40,000; architect’s fee paid by prabir Rs.
20,000. the Contract was completed and the price duly received. The joint venture was
closed by prabir taking up all the equity

33. Shares of the company at an agreed valuation of Rs. 1,60,000  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 accounts Of prabir and mihir. Joint
Venture Account Rs. Rs. To joint venture 10,00,000 By joint bank A/C 8,00,000
A/C(materials and By shares A/C 2,00,000 Wages) By mihir A/C(stock 30,000 To prabir
70,000 taken over) To mihir(material) 40,000

34. To shares (loss) 40,000 By loss to :  Rs. prabir 80,000 mihir 40,000 1,20,000 Joint Bank
Account Rs. Rs. To prabir 2,50,000 By joint ventureA/C 10,00,000 To mihir 1,50,000 By
Prabir 80,000 To joint venture 8,00,000 By mihir 1,20,000 12,00,000 12,00,000 Prabir
Account Rs. Rs.

35. Mihir Account Rs. Rs. To joint venture 40,000 By joint bank A/C 1,50,000 A/C (Loss)
By joint venture A/C 40,000 To joint venture A/C 30,000 To joint bank A/C 1,20,000
1,90,000 1,90,000

36. MEMORANDUM JOINT VENTURE ACCOUNT This method is followed when each

co-venturer in a joint Venture wants to make a record of joint venture transactions In his
books. This method is an alternative of (B) method and Operates as follows: Every co-
venturer will open a personal account called joint venture with _ account. The following
entries will be recorded in this account : Joint venture with _ A/C Dr. To cash or creditors
A/C (Being all the payments or liabilities incurred) Cash or debtors A/C Dr. To joint
venture with _ A/C

37. (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 their books. Similarly entries effecting other co- venturers will be
 recorded by other co-venturer in their books. (b) In addition to the personal accounts as
described above, a memorandum joint venture account is also opened with a view to
ascertaining profit or loss. To enable the

38. 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 be
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

39. EXAMPLE A and B entered into a joint venture account of underwriting the subscription
at par of 50,000 shares of Rs.10 each of a joint stock company. They agreed to share of
profit and loss account in the ratio of 3:5 respectively. The consideration for guaranteeing
the subscription was 500 other shares of Rs.500 each fully paid to be issued to them. The
public took up 48,000 shares and the remaining shares of the guaranteed issue were taken
by A and B who provided cash equally. The entire shareholding of the venture was then
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 collected
by A.

40. Give journal entries in the books of A and B  A’s Journal Rs. Rs. Joint venture with B
A/C Dr. 10,000 To bank A/C 10,000 (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 18,125 (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 2,250

41. (Being 250 shares taken @ 9 per share)  Joint venture with B A/C Dr. 1,575 To profit
and loss A/C 1,575 (Being 3/5 share of profit) Joint venture with B A/C Dr. 8,800 To Bank
A/C 8,800 (being payment of amount due to B) B’s Journal Rs. Rs. Joint venture with A
A/C Dr. 10,000 To Bank A/C 10,000 (being ½ of the amount provided for the purchase of
2,000 shares of Rs. 10 each)
42. 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 (Being receipt of amount due from A)
Working Notes : total number of shares to be sold on account of joint venture is as
follows:

43. Total number of shares underwritten 50,000 Less: number of shares subscribed by the
public 48,000 Number of shares purchased 2,000 Number of shares received as
commission 500 2,500 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 paise) = 2,500 x
20/100 = 500 Remaining 500 shares taken by A and B equally @ 9 per share.