Joint Venture Account
Joint Venture
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Joint venture refers to a form of co-operation
between two or more people/firms joining
together for a specific project.
Each party to the joint venture has different
responsibilities to undertake for the joint venture.
The profits and losses are shared between the
parties to the joint venture according to an agreed
ratio.
Accounting for Small Joint Ventures
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Joint Venture Account
Memorandum Joint Venture account
Joint Venture account
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Each party to the joint venture keeps a joint
venture account in his own books to record
those transactions related to him.
They are double- entry accounts, with dates;
in which individual transactions are entered.
Transactions
In Firm A’s book In Firm B’s book
1 Firm A made cash
purchases.
Dr Joint Venture No Entry
with B Account
Cr Cash
2 Goods supplied
for the joint venture
by firm A from its
own stock
Dr Joint Venture No Entry
with B Account
Cr Purchases
3 Firm A made
credit purchases
Dr Joint Venture No Entry
with B Account
Cr Creditors
Dr Creditors
No Entry
Cr Joint Venture
with B Account
4 Returns outwards
made by Firm A
Transactions
In Firm A’s book In Firm B’s book
5 Firm A purchases Dr Joint Venture No Entry
goods and settled by with B Account
accepting bill.
Cr Bills Payable
6 Bills accepted by Dr Bills Payable Dr Joint Venture
Firm A on behalf of Cr Joint Venture with A Account
the joint venture and with B Account Cr Cash
paid by Firm B.
7 Firm A received
Dr Creditors
No Entry
discounts from joint Cr Joint Venture
venture suppliers.
with B Account
8 Expenses incurred Dr Joint Venture No Entry
by Firm A on behalf with B Account
of joint venture.
Cr Cash
Transactions
In Firm A’s book
9 Firm A received or
was entitled
commissions of any
kind.
Dr Joint Venture with
B Account
Cr Commission
receivable /P &L
Dr Cash
Cr Joint Venture with
B Account
Dr Debtors
Cr Joint Venture with
B Account
10 Firm A made
cash sales
11 Firm A made
credit sales.
12 Firm A made
Dr Bill Receivable
credit sales and
Cr Joint Venture with
settled by receiving B Account
acceptance of a bill.
In Firm B’s
book
No Entry
No Entry
No Entry
No Entry
Transactions
13 Joint venture
customers returned
goods to Firm A
In Firm A’s book
Dr Joint Venture with
B Account
Cr Debtors
14 Discount allowed Dr Joint Venture with
to joint venture
B Account
customers by Firm
Cr Debtors
A
15 Bad debts
Dr Joint Venture with
incurred from joint B Account
ventures sales made Cr Debtors
by Firm A
In Firm B’s
book
No Entry
No Entry
No Entry
In Firm A’s
book
16 Bad debts incurred No entry
and borne by Firm B
as it had received a
commission (del
credere commission
for which it agreed to
accept all losses from
bad debts incurred by
itself and the other
party to the foint
venture.)
Transactions
In Firm B’s book
Dr Bad Debts
Cr Debtors
In Firm A’s
book
17 Bad debts incurred Dr Joint Venture
and Firm A, but borne with B Account
by Firm B ( Firm B
Cr Debtors
had received a
commission for which
it agreed to accept all
losses from bad debts
incurred by itself and
the other party to the
joint venture.)
Transactions
In Firm B’s book
Dr Bad Debts
Cr Joint venture
with A Account
Transactions
In Firm A’s book
In Firm B’s book
18 Firm A sent a cheque Dr Joint Venture
to Firm B to finance the with B Account
joint venture.
Cr Bank
Dr Bank
Cr Joint Venture
with A Account
19 Firm A purchased
goods on behalf of the
joint venture and sent
them to Firm B.
Dr Joint Venture
with B Account
Cr Cash
No Entry
20 Firm A sent some
No entry
goods or assets of the
joint venture to Firm B.
21 Assets taken for
Dr Drawings
personal use by Firm A. Cr Joint Venture
with B Account
No Entry
No Entry
Transactions
In Firm A’s book
In Firm B’s book
22 Unsold stock
taken over by Firm
A
Dr Stock
Cr Joint Venture with
B Account
No Entry
23Share of the profit Dr Joint Venture with
(Reverse the entries B Account
if there is a loss).
Cr P &L
24Settlement due to Dr Joint Venture with
Firm B
B Account
Cr Bank
(Reverse the entries if
payment is due from
Firm B)
Dr P &L
Cr Joint Venture
with A Account
Dr Bank
Cr Joint Venture
with A Account
Memorandum Joint Venture Account
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It is dept to record the combined sales,
purchases and expenses of the joint venture
This is to ascertain the profit or losses at
the termination of the joint venture or at the
financial year end of the parties to the joint
venture.
Memorandum Joint Venture Account
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It is not a double - entry account.
Internal transfers of goods, assets or cash
should not be included in the Memorandum
JV account. ( It is because these
transactions are neither income nor
expenses in nature.
Firm A and Firm B
Memorandum Joint Venture Account
$ $
$
Purchases
X
Less Returns outwards X X
Sales
Less Return inwards
Expenses
Bad Debts
Discount Allowed
Profit - A
-B
Discount received
Asset taken over
Stock taken over
X
X
X
X
X X
X
X
X
X
X
X
X
X
Example 1
Wong
Joint Venture with Chan Account
1996
$
1996
$
Cash- purchases
20,000 Bills payable-paid by Cha 15,000
Creditors- purchases
40,000 Debtors-sales
115,000
Bills payable- purchases 15,000
Expenses
20,000
Commission receivable
-Ordinary
9,000
-Del credere
4,500
Debtors-return inwards 5,000
Debtors-discount allowed 2,000
Chan
Joint Venture with Wong Account
1996
Cash - purchases
Cash -paid Wong’s bill
Cash - expenses
Commission receivable
Debtors- Bad debts
1996
$
30,000 Debtors-sales
15,000 Stock taken over
7,000
2,000
500
$
30,000
6,500
Wong and Chan
Memorandum Joint Venture Account
1996
$
$
1996
Sales (115000+30000)
Purchases (20,000+40000
+15000+30000)
105,000 Less Return inwards
Expenses (6000+7000)
13,000
Stock taken over
Bad Debts
500
Discount allowed
2,000
Commission receivable
-Ordinary (9000+2000) 11,000
-Del credere
4,500
$
145,000
5,000
140,000
6,500
Share of profit:
Wong
8,400
Chan
2,100 10,500
146,500
146,500
Wong
Joint Venture with Chan Account
1996
$
1996
$
Cash- purchases
20,000 Bills payable-paid by Cha 15,000
Creditors- purchases
40,000 Debtors-sales
115,000
Bills payable- purchases 15,000
Expenses
20,000
Commission receivable
-Ordinary
9,000
-Del credere
4,500
Debtors-return inwards 5,000
Debtors-discount allowed 2,000
Profit and Loss
8,400
Bank-settlement due to
Chan
20,100
130,000
130,000
Chan
Joint Venture with Wong Account
1996
Cash - purchases
Cash -paid Wong’s bill
Cash - expenses
Commission receivable
Debtors- Bad debts
Profit and Loss
$
30,000
15,000
7,000
2,000
500
2,100
56,600
1996
Debtors-sales
Stock taken over
Bank–settlement from
Wong
$
30,000
6,500
20,100
56,600
Intermediate Settlement
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If the joint venture will take a few years,
there is a need to calculate and allocate
profit at each financial year end.
When an intermediate settlement is
required, the stock in the hands of either or
both of the parties to the joint venture must
be taken in consideration.
Treatment of stock
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In the memorandum joint venture account,
the total stock is credited and carried.
In joint venture accounts, the stock can be:
1.
2.
Credited to each party individually according
to the stock held by each OR
Divided in profit-sharing ratio and credited
to each joint venture account.
1. Credit to each party individually
according to the stock held by each
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Example 2
Refer to example 1, there was an
intermediate settlement at that date.
A closing stock of $2,000 was held by
Wong and a closing stock of $4,500 was
held by Chan.
Profit- sharing ratio of Wong and Chan is
4:1
Wong
Joint Venture with Chan Account
1996
$
Cash- purchases
20,000
Creditors- purchases
40,000
Bills payable- purchases 15,000
Expenses
20,000
Commission receivable
-Ordinary
9,000
-Del credere
4,500
Debtors-return inwards 5,000
Debtors-discount allowed 2,000
Profit and Loss
8,400
Bank-settlement due to
Chan
22,100
130,000
1996
$
Bills payable-paid by Cha 15,000
Debtors-sales
115,000
Stock c/d
2,000
130,000
Chan
Joint Venture with Wong Account
1996
Cash - purchases
Cash -paid Wong’s bill
Cash - expenses
Commission receivable
Debtors- Bad debts
Profit and Loss
$
30,000
15,000
7,000
2,000
500
2,100
56,600
1996
Debtors-sales
Stock c/d
Bank–settlement from
Wong
$
30,000
4,500
22,100
56,600
Wong and Chan
Memorandum Joint Venture Account
1996
$
$
1996
Sales (115000+30000)
Purchases (20,000+40000
+15000+30000)
105,000 Less Return inwards
Expenses (6000+7000)
13,000
Stock c/d
Bad Debts
500
Discount allowed
2,000
Commission receivable
-Ordinary (9000+2000) 11,000
-Del credere
4,500
$
145,000
5,000
140,000
6,500
Share of profit:
Wong
8,400
Chan
2,100 10,500
146,500
146,500
2. Divided in profit-sharing ratio and
credited to each joint venture account
Example 3
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Refer to example 1, there was an
intermediated settlement at that date.
The total closing stock was $6,500.
Wong
Joint Venture with Chan Account
1996
$
Cash- purchases
20,000
Creditors- purchases
40,000
Bills payable- purchases 15,000
Expenses
20,000
Commission receivable
-Ordinary
9,000
-Del credere
4,500
Debtors-return inwards 5,000
Debtors-discount allowed 2,000
Profit and Loss
8,400
Bank-settlement due to
Chan
25,300
130,000
1996
$
Bills payable-paid by Cha 15,000
Debtors-sales
115,000
Stock c/d (6500*4/5)
5,400
130,000
Chan
Joint Venture with Wong Account
1996
Cash - purchases
Cash -paid Wong’s bill
Cash - expenses
Commission receivable
Debtors- Bad debts
Profit and Loss
$
30,000
15,000
7,000
2,000
500
2,100
56,600
1996
Debtors-sales
Stock c/d (6500*1/5)
Bank–settlement from
Wong
$
30,000
1,300
25,300
56,600
Joint Venture in Final Accounts
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In profit and loss account:
Profit and loss account (Extract)
Gross Profit
$
X
Profit from Joint venture X
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On Balance Sheet:
Balance Sheet (Extract)
$
Current Assets
Stock
-normal business
-joint venture
Joint Venture a/c
(if it is debit balance)
$
Current Liabilities
X
X
Joint Venture a/c
(if it is credit balance)
X
X
X
Debit balance: the party to the joint venture has received less money
from the joint venture then he should keep. He will either receive the
amount owed from other party.
Credit balance: the party to the joint venture has received more money
from the joint venture than he should keep. He will either pay the
amount due to other party.