Professor Vipin 2014
Joint Venture Accounts
Meaning
A JV is an association of two or more than two persons who have combined for the execution of a
specific transaction and divide the profit or loss thereof in the agreed ratio.
Difference Between JV and Partnership
It is quite normal to think of joint venture and partnership business as one. However, they are two
entities, which have very clear-cut differences.
Joint venture involves two or more companies joining together in business. In partnership, it is
individuals who join together for a combined venture. Two or more companies, which are listed in the
stock market often, engage in a joint venture to overcome business competition. While engaging in
partnership, the individuals involved become partners in an organization for the sake of profit.
A Joint Venture can be termed as a contractual arrangement between two companies, which aims to
undertake a specific task. Whereas partnership involves an agreement between two parties wherein
they agree to share the profits as well as take the burden of loss incurred.
Accounting for JV
1. When separate set of books for the venture is maintained
2. When only one venture keeps the accounts
3. When all ventures’ keep the accounts.
When Separate Set of Books are Maintained
In this case the following accounts are opened:
1. Joint bank account
2. Joint venture account
3. Personal accounts of each venturer
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Journal Entries
Sl No
Particulars
Amount
Amount
When venture contribute cash to the
1 joint funds
Joint Bank A/C
To Venturer's A/c
When amount is spent on expenses or
2 for purchasing goods for the venture
Joint Venture A/C
To Joint Bank A/c
3
4
5
6
7
8
9
10
If any expenses are paid by the
venturers
Joint Venture A/C
To Venturer's A/c
For Sales (Cash)
Joint Bank A/C
To Joint Venture A/c
For Sales (Credit)
Sundry Drs A/C
To Joint Venture A/c
If stock is taken by a venturer
Venturer's A/C
To Joint Venture A/c
If stock remains unsold
Joint Venture Stock A/C
To Joint Venture A/c
Balance will be Profit
Joint Venture A/C
To Venturer's A/c
Balance will be Loss
Venturer's A/C
To Joint Venture A/c
Joint Bank account and personal
accounts of will be automatically
closed by introduction or withdrawal of
cash
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Example 1
Wadekar and Pataudi entered into a joint venture to develop some building sites and sell them on the
understanding that the result of the venture would be shared in the ratio 4:5 between them. It also
agreed that any cash investment they make in the venture would be entitled at 10% pa.
They chose a five acre agricultural plot and purchased it for Rs. 60000. They approached a nationalized
bank which agreed to finance them to the extent of 80% of the cost at 16% pa interest. The buying
agreements were finalized on 1st July 1997 and the vendors paid off the same day. Balance of the
purchase consideration and also the registration expenses which came to 8% were met by WAdekar out
of his own resources.
Pataudi met the cost of preparation of the layout, advertisements which were as under:
Particulars
Leveling and engineering costs paid to architects on 1/8/97
Municipal fees 1/9/97
Ad Expenses 1/10/97
Ent expenses 31/12/97
Per Ground
250
400
17500
1120
Plots were advertised for sale in newspapers on 15/9/97 and on the basis of response the entire area
was dealt with as under:
1.
2.
3.
4.
15% of total area was to be left for roads, market place, police station and park
10 plots each of 3, 2.5 and 1.5 grounds were made
The balance area was taken equally by Wadekar and Pataudi at cost.
1.5 ground plots carried a premium of 50%, 2.5 ground plots a premium of 40% and 3 ground
plots a premium of 25% over cost.
5. Pataudi to receive 8% of the sale proceeds as management fee for his efforts.
The entire transactions were put through by 31st December 1997. Show the joint venture account and
the statement of account settlement between the venturers (1 acre = 18 grounds of 2400sqft each)
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Solution 1
M/S Wadekar and Pataudi
Joint Venture Account
Particulars
To JV Bank A/c (Cost
of Land)
To Wadekar (part of
cost of land and
registration charges)
To Pataudi:
Leveling- 22500
Municipal- 36000
Adv Charges- 17500
Ent Charges- 1120
To JV Bank A/c
To Interest to
Wadekar
To Interest to Pataudi
(937.50 + 1200 +
437.50)
To Management Fee
(8%)
To Profit Transferred:
Wadekar
Pataudi
Amount
Particulars
Amount
48000
By JV Bank A/c (Sale
proceeds of the plots)
16800
By Pataudi (Cost of
plots taken over)
5525
By Wadekar (Cost of
Plots taken over)
5525
161500
77120
3840
840
2575
12920
4647
5808
172550
172550
Wadekar Account
Particulars
To JV A/c (Cost of
plots)
To JV Bank A/C
Amount
5525
16762
22827
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Particulars
By JV Account:
Expenses
Interest
Profit
Amount
16800
840
4647
22827
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Professor Vipin 2014
Pataudi Account
Particulars
Amount
To JV A/c (Cost of
plots)
To JV Bank A/C
5525
92898
Particulars
By JV A/c:
Sundry Expenses
Management Fee
Interest
Profit
98423
Amount
77120
12920
2575
5808
98423
JV Bank Account
Particulars
Amount
To JV A/c (Sale
Proceeds)
161500
161500
Particulars
By JV A/c (cost of
land)
By JV A/c (interest)
By Wadekar
By Pataudi
Amount
48000
3840
16762
92898
161500
Working Notes
Number of Grounds
Area
Less: Area for road,
market place, police
station and park (15%)
Balance
Plots for Sale 10 x
(3+2.5+1.5)
Plots for coventurers
Grounds
90
13.5
76.5
70
6.5
Cost of Land
Registration (8%)
60000
4800
Leveling and
Engineering at 250
per ground
Municipal fee at 400
per ground
22500
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36000
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Professor Vipin 2014
Interest due on Bank
loan was Rs. 48000 at
16% pa for 6 months
3840
Interest on Wadekar
on Rs. 16800 pa for 6
months
Interest to Pataudi:
On 22500 at 10% for
5 months
On 36000 at 10% for
4 months
Cost of 76.5 grounds
1200
130117.5
Cost per ground
1700 ~
840
937.5
Sale Proceeds
Particulars
Selling price per plot:
1.5 ground plots (2250
+ 50%)
2.5 ground plots (4250
+ 40%)
3 ground plots (5100 +
25%)
Amount
Amount
3825
38250
5950
59500
6375
63750
161500
When All Venturers Keep Accounts
In the method discussed above each co-venturer records all transactions relating to the joint venture in
the Joint Venture Account opened in his books. But, under the Memorandum Joint Venture Account
Method each co-venturer will record only those transactions relating to the joint venture which are
directly concerned with him and not those of others.
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Journal Entries
Under this method each co-venturer opens a Joint Venture Account including the name of the other coventurer. The heading of the account is 'Joint Venture with (name of coventurer) Account'. The Joint
Venturer with (name of co-venturer) Account is a personal account and it does not show any profit or
loss. The following entries will be made in this account
Particulars
JV with X A/C
Amount
Amount
To Cash / Bank /
Creditors A/c
(being payments by
cheque or cash or
liabilities incurred In
JV)
Cash / Debtors a/c
To JV with X a/c
(Being sale cash /
credit made on
account of JV)
A separate 'Joint Venture Memorandum Account' is prepared to ascertain profit or loss in Joint Venture.
It is just like profit and loss account, all the expenses and losses are debited to it and all incomes and
gains are credited to it. All the items of personal accounts will also appear on the same side of 'Joint
Venture Memorandum Account'. The balance of Joint Venture Memorandum Account shows profits or
loss on joint venture and each party makes an entry for his share of profits or losses. The journal entry is
as under:
Particulars
JV with X A/c
To P&L a/c
(Being profit earned on
JV)
Amount
Amount
Or
P&L a/c
To JV with X a/c
(Being loss effected on
JV)
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Example 2
A and B entered into a Joint venture involving the buying and selling of old railway material with an
agreement to share profit or loss equally. (The amount is in Rs. Hundreds). The cost of the material
purchased was Rs. 30,000 which was paid by A, who drew bill of Rs. 20,000 on B at three months'
period.
The bill was discounted by A at cost of Rs. 160. The transactions relating to the ventures were:
1) A paid Rs. 200 for carriage, Rs. 600 for commission on sales and Rs. 100 for travelling expenses (ii) B
paid Rs. 80 for travelling expenses and Rs. 120 for sundry expenses (iii) Sales made by A amounted to Rs.
21,400 less allowance for faulty goods Rs. 400 and (iv) Sales made by B were Rs. 15,000.
The remaining goods were retained by A and B for their private use and these were charged to them as
Rs. 1600 and Rs. 2400 respectively. A was credited with sum of Rs. 300 to cover the cost for
warehousing and insurance. The expenses in connection with the discounting to the bill were to be
treated as a charge against the venture. Prepare the ledger accounts in the books of both the parties
and also the memorandum joint venture account.
Solution 2
Joint Venture Memorandum A/c
Particulars
To Materials
To Discount on Bill
To Carriage
To Commission
To Travel (100+8)
To Sundry Expenses
To Warehouse
To Profit:
A: 4220
B: 4220
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Amount
30000
160
200
600
180
120
Particulars
By Sales
(21000+15000)
By Stock Taken by:
A: 1600
B: 2400
Amount
36000
4000
300
8440
40000
40000
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Professor Vipin 2014
In the Books of A
Joint Venture with B A/c
Particulars
To Bank (material)
To Discount on Bill
To Bank:
Carriage: 200
Commission: 600
Travel Exp: 100
Amount
30000
160
Warehousing: 300
1200
To P&L
To Bal B/d
Particulars
By Bank (Sales)
By stock taken
By Balance c/d
4220
35580
Amount
21000
1600
12980
35580
12980
In the Books of B
Joint Venture with A A/c
Particulars
To Bank:
Travel Exp: 80
Sundry Exp: 120
To P&L a/c
To balance c/d
Amount
Particulars
By Bank (sales)
By stock taken
200
4220
12980
17400
17400
By Bal B/d
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Amount
15000
2400
12980
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