JOINT VENTURE ACCOUNT

Introduction

Joint Venture is a temporary form of business organization. There are certain business activities
or projects that may involve higher risks; higher investments and even they demand multi-skills.
In such cases, an individual person may not be able to muster all resources. Hence two or more
people having requisite skill sets come together to form a temporary partnership. This is called a
Joint Venture. There is a Memorandum of Undertaking (MOU) signed for this purpose.

The business activities for which Joint Ventures (JV) are formed could be:

 Construction of dams, bridges, roads etc

 Buying & selling of goods for a particular season
 Producing a fi lm
 Purchasing land selling plots

The basic features of a Joint Venture business are:

i. It is done for a specific purpose and hence has a limited duration.

ii. The partners are called co-venturers.
iii. The profit or loss on joint venture is shared between the co-venturers in the agreed ratio.
iv. The co-venturers may or may not contribute initial capital.
v. The JV is dissolved once the purpose of the business is over.
vi. The accounts of the co-venturers are settled immediately on dissolution.
vii. A joint venture has no name.

Accounting Entries
There are basically three ways of maintaining the books of account for the joint venture business.
They are:
1. Where separate books of accounts are maintained
2. Where no separate books of accounts are maintained
3. Memorandum Joint Venture

1. When Separate Books are Maintained

As the business duration is short, the books of accounts are not very comprehensive. The basic
purpose is to know profit or loss on account of the joint venture.

a) Like a normal P & L A/c, a “Joint Venture A/c” is opened which records all transactions
related to the activities carried out. The net result of this a/c will be either profit or loss.
b) To record cash/bank transactions a “Joint Bank A/c” is maintained. This could take a
form of cash book with cash and bank column. It will record, the initial contributions
 made by each co-venturer, proceeds of sales, expenses and distribution of net balances
among co-venturers on dissolution of the venture.
c) To record transaction related to co-venturers, “Co-Venturers‟ personal A/cs” are also
maintained.
The accounting entries are normally as follows:

No. Transaction Entry

1. Contribution of co-venturers Joint Bank A/c Dr.

Co-Venturers A/c Cr.

2. Goods sent by co-venturer out of his own stock Joint Venture A/c Dr.
Co-Venturers A/c Cr.

3. Expenses paid by co-venturers Joint Venture A/c Dr.

Co-Venturers A/c Cr.

4. Materials purchased out of joint venture funds Joint Venture A/c Dr.
Joint Bank A/c Cr.

5. For expenses out of joint bank A/c Joint Venture A/c Dr.
Joint Bank A/c Cr.

6. For goods sold for cash Joint Bank A/c Dr.

Joint Venture A/c Cr.

7. Contract/sale price received in form of shares/cash Joint Bank A/c Dr.

Shares A/c Dr.
Joint Venture A/c Cr.

8. Commission/salary to co-venturers Joint Venture A/c Dr.

Co-Venturers A/c Cr.

9. Unsold goods taken over by co-venturers Co-Venturers A/c Dr.

Joint Venture A/c Cr.

10. Shares taken over by co-venturers Co-Venturers A/c Dr.

Shares A/c Cr.

11. If shares are sold in open market Joint Bank A/c Dr.
Shares A/c Cr.

12. For profit on joint venture Joint Venture A/c Dr.

Co-Venturers A/c Cr.

13. For loss on joint venture Co-Venturers A/c Dr.

Joint Venture A/c Cr.
 14. For final distribution of funds Co-Venturers A/c Dr.
Joint Bank A/c Cr.

Illustration 1
Aditya and Amit entered into a joint venture to buy and sale Ganesh idols for the Ganesh
festival. They opened a Joint Bank A/c. Aditya deposited GHc200,000 and Amit GHc150,000.
Aditya supplied Ganesh idols worth GHc25,000 and Amit supplied decoration material worth
GHc15,000.

The following payments were made by the venture:

a) Cost of Ganesh idols purchased GHc2,50,000
b) Transportation charges GHc12,000
c) Advertising GHc7,500 and Sundry Expenses GHc2,500

They sold idols for GHc400,000 for cash. Aditya took over some idols for GHc30,000 and Amit
took over remaining for GHc10,000. The profit or losses were to be shared equally between co-
venturers.

Prepare Joint Venture A/c, Joint Bank A/c and each Co-Venturer‟s A/c.

SOLUTION

JOINT VENTURE ACCOUNT

Amount Amount
Particulars GHc Particulars GHc
Aditya Materials A/c 25000 Joint Bank A/c –sales 400000
Amit Materials A/c 15000 Aditya A/c 30000
Joint Bank Material A/c 250000 Amit A/c 10000
Joint Bank Transport A/c 12000
Joint Bank Advertising A/c 7500
Joint Bank sundry A/c 2500
Profi t on Venture A/c :
Aditya 64000
Amit 64000
440000 440000

JOINT BANK ACCOUNT

Amount Amount
Particulars GHc Particulars GHc
Aditya A/c 200000 Joint Venture A/c : materials 250000
Amit A/c 150000 Joint VentureA/c : transport 12000
Joint Venture A/c - sales 400000 Joint Venture A/c : advertising 7500
Joint Venture A/c : sundry 2500
Aditya A/c : closing 259000
 Amit A/c : closing 219000
750000 750000

ADITYA ACCOUNT
Amount Amount
Particulars GHc Particulars GHc
Joint Venture A/c -
material 30000 Joint Bank 200000
Joint Bank A/c - closing 259000 Joint Venture - materials 25000
Joint Venture – profi t 64000
289000 289000

AMIT ACCOUNT
Amount Amount
Particulars GHc Particulars GHc
Joint Venture A/c -
material 10000 Joint Bank 150000
Joint Bank A/c - closing 219000 Joint Venture - materials 15000
Joint Venture – profi t 64000
229000 229000

Illustration 2

Prempeh and Mensa doing business separately as building contractors undertake jointly to build
a skyscraper for a newly started public limited company for a contract price of GHc10,000,000
payable as GHc8,000,000 in cash and the balance by way of fully paid equity shares of the new
company.
A Bank A/c was opened for this purpose in which Prempeh paid GHc2,500,000 and Mensah
GHc1,500,000. The profit sharing ratio was agreed as 2:1 between Prempeh and Mensah.

The transactions were:

1) Advance received from the company GHc5,000,000
2) Wages to contractors GHc1,000,000
3) Bought materials GHc6,000,000
4) Material supplied by Prempeh GHc1,000,000
5) Material supplied by Mensah GHc1,500,000
6) Architect‟s fees paid from Joint Bank account GHc2,100,000
The contract was completed and the price was duly paid. The joint venture was duly closed by
Prempeh taking all the shares at GHc1,800,000 and Mensah taking over the balance of materials
for GHc300,000.

Prepare the Joint Venture A/c, Joint Bank A/c. Co-venturer‟s A/cs and Shares A/c.
 JOINT VENTURE ACCOUNT
Amount Amount
Particulars GHc Particulars GHc
Joint Bank A/c – wages 1000000 Joint Bank A/c - advance 5000000
Joint Bank A/c - material 6000000 Joint Bank A/c - balance price 3000000
Joint Banks A/c - Architect 2100000 Shares A/c – received 2000000
Prempeh A/c - material 1000000 Mensah A/c - stock taken 300000
Mensah A/c - material 1500000 Prempeh A/c - 2/3rd loss 1000000
Shares A/c - loss 200000 Mensah A/c - 1/3rd loss 500000
11800000 11800000

JOINT BANK ACCOUNT

Amount Amount
Particulars GHc Particulars GHc
Prempeh A/c 2500000 Joint Venture A/c – wages 1000000
Mensah A/c 1500000 Joint Venture A/c – materials 6000000
Joint Venture A/c - advance 5000000 Joint Venture A/c – Architect 2100000
Joint Venture A/c - balance 3000000 Prempeh A/c - balance paid 700000
Mensah A/c - balance paid 2200000
12000000 12000000

PREMPEH ACCOUNT
Amount Amount
Particulars GHc Particulars GHc
Shares A/c – taken 1800000 Joint Bank A/c 2500000
Joint Venture A/c - loss 1000000 Joint Venture A/c - material 1000000
Joint Bank A/c - Balance paid 700000
3500000 3500000

MENSAH ACCOUNT
Amount Amount
Particulars GHc Particulars GHc
Joint Venture A/c – stock taken 300000 Joint Bank A/c 1500000
Joint Venture A/c – Loss 500000 Joint Venture - material 1500000
Joint Bank A/c - Balance paid 2200000
3000000 3000000

SHARES ACCOUNT
Amount Amount
Particulars GHc Particulars GHc
Joint Venture A/c 2000000 Prempeh A/c 1800000
Joint Venture A/c - loss 200000
 2000000 2000000

2. When no Separate Books of Accounts are Maintained

The co-venturers may decide not to keep separate books of account for the venture if it is for a
very short period of time. In this case, all co-venturers will have account for the transactions in
their own books. Here no Joint Bank A/c is opened and the co-venturers do not contribute in
cash. Goods are supplied by them from out of their stocks and expenses for the venture are also
settled the same way.

Each co-venturer will prepare a Joint Venture A/c and the other Co-Venturer‟s A/c in his books.
Naturally, the profit or loss is separately calculated by each co-venturer. Each co-venturer will
take into A/c all transactions i.e. done by himself and by his co-venturer(s) as well.

The accounting entries are:

In books of Co-venturer A In books of co-venturer B

When goods are supplied and expenses paid by A

Joint Venture A/c Dr. Joint Venture A/c Dr.

Goods A/c Cr. A‟s A/c Cr.
Cash / Bank A/c Cr.

When goods are supplied by B and expenses paid by B

Joint Venture A/c Dr. Joint Venture A/c Dr.

B‟s A/c Cr. Goods A/c Cr.
Cash / Bank A/c Cr.

When advance is given by A to B or bill accepted by A

B‟s A/c Dr. Cash / Bank A/c Dr.

Cash / Bank A/c Cr. B/R A/c Dr.
B/P A/c Cr. A‟s A/c Cr.

When sale proceeds are received by A

Cash / Bank A/c Dr. A‟s A/c Dr.

Joint Venture A/c Cr. Joint Venture A/c Cr

When sale proceeds are received by B

B‟s A/c Dr. Cash / Bank A/c Dr

Joint Venture A/c Cr. Joint Venture A/c Cr.
For unsold goods taken over by A

Goods A/c Dr. A‟s A/c Dr

Joint Venture A/c Cr. Joint Venture A/c Cr.

For unsold goods taken over by B

B‟s A/c Dr. Goods A/c Dr.

Joint Venture A/c Cr. Joint Venture A/c Cr.

For profit on joint venture business

Joint Venture A/c Dr. Joint Venture A/c Dr.

B‟s A/c Cr. A‟s A/c Cr.
P & L A/c Cr. P & L A/c Cr.

For loss on joint venture business

B‟s A/c Dr. A‟s A/c Dr

P & L A/c Dr. P & L A/c Dr.
Joint Venture A/c Cr. Joint Venture A/c Cr.

After closure the business of joint venture, the co-venturer who has received surplus cash will
remit it to the other co-venturer(s).
As a variation from this system, the co-venturers may decide to maintain a separate
„Memorandum Joint Venture A/c‟ in joint books. In this, transactions made by each co-venturer
is shown against their names. This A/c will show profit or loss. The co-venturers will keep an
account called “Joint venture with co-venturer A/c” wherein all transactions done by him only
are recorded.

Illustration 3.

John and Smith entered into a joint venture business to buy and sale garments to share profi ts or
losses in the ratio of 5:3. John supplied 400 bales of shirting at GHc500 each and also paid
GHc18,000 as carriage & insurance. Smith supplied 500 bales of suiting at GHc480 each and
paid GHc22,000 as advertisement & carriage. John paid GHc50,000 as advance to Smith.

John sold 500 bales of suiting at GHc600 each for cash and also all 400 bales of shirting at
GHc650 each for cash. John is entitles for commission of 2.5% on total sales plus an allowance
of GHc2,000 for looking after business. The joint venture was closed and the claims were settled.

Prepare Joint Venture A/c and Smith‟s A/c in the books of John and John‟s A/c in the books of
Smith.

IN THE BOOKS OF JOHN

JOINT VENTURE ACCOUNT
Particulars Amount Particulars Amount
 GHc GHc
Goods A/c - shirting (400x500) 200000 Cash A/c – sales:
Bank A/c - carriage &
insurance 18000 shirting (500 x 600) 300000
Smith A/c - suiting (500x480) 240000 suiting (400 x 650) 260000
Smith A/c - advt & Carriage 22000
Commission A/c - 2.5% 14000
Allowance A/c 2000
P & L A/c (5/8th share) 40000
Smith A/c (3/8th share) 24000
560000 560000

SMITH'S ACCOUNT
Amount Amount
Particulars GHc Particulars GHc
Cash A/c - advance 50000 Joint Venture A/c - suiting 240000
Cash A/c - balance paid 236000 Joint Venture A/c - expenses 22000
Joint Venture A/c - profi t 24000
286000 286000

IN THE BOOKS OF SMITH

JOHN'S ACCOUNT
Amount Amount
Particulars GHc Particulars GHc
Joint Venture A/c - sales 560000 Cash A/c - advance 50000
Joint Venture A/c - shirting 200000
Joint Venture A/c - expenses 18000
Joint Venture A/c -
commission 14000
Joint Venture A/c - Allowance 2000
Joint Venture A/c – profi t 40000
Cash A/c - balance paid 236000
560000 560000

3. Memorandum Joint Venture Account

When all the parties keep accounts, the method adopted for recording the transactions relating to
joint venture, is called Memorandum Joint venture method. Here each Co-Venturer records only
those joint venture transactions which are affected by him with the help of a personal account
designed as „Joint Venture with……….(Name of the other Co-Venturer)……Account‟.

It is debited with the amount of purchases/supplies made and expenses incurred by the Venturer.
Each Co-Venturer sends a periodic statement of joint venture transactions effected by him only,
to the other Co-Venturer and on receipt of the aforesaid statement, each Co-Venturer prepares
Memorandum Joint Venture Account in order to ascertain the profi t/loss on Joint Venture
transactions.

Since this account is in fact, not a part and parcel of double entry system the word
„memorandum‟ is prefixed.

The journal entries which may be required at any point of time are summarized below:

1.(a) On receipt of any amount/Bills Receivable from other Co-Venturer:

Cash/Bank/Bills Receivable A/c Dr.
Joint Venture with …………..A/c Cr.

1.(b) On discounting Bills Receivable:

Bank A/c Dr. (with net proceeds)
Joint Venture with …………..A/c Dr. (with discount)
Bills Receivable A/c Cr. (with total)

2. On purchase of goods:
Joint Venture with …………..A/c Dr. (with total)
Cash/Bank A/c Cr. (with cash purchase)
Supplier‟s A/c Cr, (with credit purchase)

3. On making payment to supplier

Supplier‟s A/c Dr. (with total)
Cash/Bank/Bills Payable A/c (with payment made)
Joint Venture with …………..A/c (with discount received)

4. On supply of goods out of own stock:

Joint Venture with …………..A/c Dr.
Purchases/Goods sent on Joint Venture A/c Cr, (if supplies at cost)
Sales A/c Cr. (if supplies at profit)

5. On payment of expenses:
Joint Venture with …………..A/c Dr. (with total)
Cash/Bank A/c Cr. (with cash expenses)
Creditor‟s A/c Cr (with outstanding expenses)

6. On sale of goods:
Cash/Bank A/c Dr. (with cash sales)
Customer‟s A/c Dr. (with credit sales)
Joint Venture with …………..A/c Cr. (with total)
7. On receiving payment from a customer:
Cash/Bank A/c Dr. (with the payment received)
Joint Venture with …………..A/c Dr. (discount allowed/bad debt)
Customer‟s A/c Cr, (with total)

8. On taking away of unsold goods:

Goods sent on Joint Venture A/c Dr.
Joint Venture with …………..A/c Cr

9. On considering some commission/salary to the Co-Venturer:

Joint Venture with …………..A/c Dr.
Commission/Salary A/c Cr.

10. On recording the share of Profi t/Loss:

(a) When profit-
Joint Venture with …………..A/c Dr.
Profi t & Loss A/c Cr.

(b) When loss-

Profi t & Loss A/c Dr.
Joint Venture with …………..A/c Cr.

11. On settlement of balance of Joint Venture with ……..A/c:

(a) When there is a debit balance:
Cash/Bank A/c Dr.
Joint Venture with …………..A/c Cr.

(b) When there is a credit balance:

Joint Venture with …………..A/c Dr.
Cash/Bank A/c Cr,

Illustration 30
Ravi and Suresh entered into a Joint Venture for purchase and sale of electronic goods, sharing
profit & loss in this ratio of 3:2. They also agreed to receive 5% commission on their individual
sales and the following information was extracted from the records.

July 1. 2012 : Ravi purchased goods worth GHc190,000 financed to the extent of 90% out of his
funds and balance by load from his uncle Shyam.

Aug. 1 2012 : Ravi sent goods costing GHc170,000 to Suresh and paid ` 1,410 as freight. Suresh
paid` 13,410 to Ravi.

Oct. 1 2012 : Suresh sold all the goods sent to him. Ravi paid the loan takes from his uncle
including interest of GHc350.
All sales by either party were made at as uniform profit of 40% after cost. On Nov. 30, 2012,
they decided to close the venture by transforming the balance of goods unsold lying with Ravi at
a cost of GHc 9,000 to a wholesale dealer.

You are required to prepare the Memorandum Joint Venture Account, Joint Venture with Ravi in
the books of Suresh and Joint Venture with Suresh in the books of Ravi.

They further disclosed that goods worth GHc4,000 were taken personally by Ravi at an agreed
price of GHc5,000.