Joint Venture Account. Joint Venture Joint venture refers to a form of co-operation between two or more people/firms joining together for a specific project

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  • Slide 1
  • Joint Venture Account
  • Slide 2
  • Joint Venture 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.
  • Slide 3
  • Accounting for Small Joint Ventures Joint Venture Account Memorandum Joint Venture account
  • Slide 4
  • Joint Venture account 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.
  • Slide 5
  • TransactionsIn Firm As bookIn Firm Bs book 1 Firm A made cash purchases. Dr Joint Venture with B Account Cr Cash No Entry 2 Goods supplied for the joint venture by firm A from its own stock Dr Joint Venture with B Account Cr Purchases No Entry 3 Firm A made credit purchases Dr Joint Venture with B Account Cr Creditors No Entry 4 Returns outwards made by Firm A Dr Creditors Cr Joint Venture with B Account No Entry
  • Slide 6
  • TransactionsIn Firm As bookIn Firm Bs book 5 Firm A purchases goods and settled by accepting bill. Dr Joint Venture with B Account Cr Bills Payable No Entry 6 Bills accepted by Firm A on behalf of the joint venture and paid by Firm B. Dr Bills Payable Cr Joint Venture with B Account Dr Joint Venture with A Account Cr Cash 7 Firm A received discounts from joint venture suppliers. Dr Creditors Cr Joint Venture with B Account No Entry 8 Expenses incurred by Firm A on behalf of joint venture. Dr Joint Venture with B Account Cr Cash No Entry
  • Slide 7
  • TransactionsIn Firm As bookIn Firm Bs book 9 Firm A received or was entitled commissions of any kind. Dr Joint Venture with B Account Cr Commission receivable /P &L No Entry 10 Firm A made cash sales Dr Cash Cr Joint Venture with B Account No Entry 11 Firm A made credit sales. Dr Debtors Cr Joint Venture with B Account No Entry 12 Firm A made credit sales and settled by receiving acceptance of a bill. Dr Bill Receivable Cr Joint Venture with B Account No Entry
  • Slide 8
  • TransactionsIn Firm As bookIn Firm Bs book 13 Joint venture customers returned goods to Firm A Dr Joint Venture with B Account Cr Debtors No Entry 14 Discount allowed to joint venture customers by Firm A Dr Joint Venture with B Account Cr Debtors No Entry 15 Bad debts incurred from joint ventures sales made by Firm A Dr Joint Venture with B Account Cr Debtors No Entry
  • Slide 9
  • TransactionsIn Firm As book In Firm Bs book 16 Bad debts incurred 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.) No entryDr Bad Debts Cr Debtors
  • Slide 10
  • TransactionsIn Firm As book In Firm Bs book 17 Bad debts incurred and Firm A, but borne by Firm B ( Firm B 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.) Dr Joint Venture with B Account Cr Debtors Dr Bad Debts Cr Joint venture with A Account
  • Slide 11
  • TransactionsIn Firm As bookIn Firm Bs book 18 Firm A sent a cheque to Firm B to finance the joint venture. Dr Joint Venture with B Account 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 goods or assets of the joint venture to Firm B. No entryNo Entry 21 Assets taken for personal use by Firm A. Dr Drawings Cr Joint Venture with B Account No Entry
  • Slide 12
  • TransactionsIn Firm As bookIn Firm Bs book 22 Unsold stock taken over by Firm A Dr Stock Cr Joint Venture with B Account No Entry 23Share of the profit (Reverse the entries if there is a loss). Dr Joint Venture with B Account Cr P &L Dr P &L Cr Joint Venture with A Account 24Settlement due to Firm B Dr Joint Venture with B Account Cr Bank (Reverse the entries if payment is due from Firm B) Dr Bank Cr Joint Venture with A Account
  • Slide 13
  • Memorandum Joint Venture Account 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.
  • Slide 14
  • Memorandum Joint Venture Account 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.
  • Slide 15
  • Firm A and Firm B Memorandum Joint Venture Account $ $ Purchases X Less Returns outwards X X Expenses X Bad Debts X Discount Allowed X Profit - A X - B X X $ Sales X Less Return inwards X X Discount received X Asset taken over X Stock taken over X X
  • Slide 16
  • Example 1
  • Slide 17
  • Wong Joint Venture with Chan Account 1996 $ Debtors-return inwards 5,000 Creditors- purchases 40,000 Bills payable- purchases 15,000 Expenses 20,000 Commission receivable -Ordinary 9,000 -Del credere 4,500 Debtors-discount allowed 2,000 Cash- purchases 20,000Bills payable-paid by Cha 15,000 Debtors-sales 115,000
  • Slide 18
  • Chan Joint Venture with Wong Account 1996 $ Debtors- Bad debts 500 Cash -paid Wongs bill 15,000 Cash - expenses 7,000 Commission receivable 2,000 Cash - purchases 30,000Debtors-sales 30,000 Stock taken over 6,500
  • Slide 19
  • Wong and Chan Memorandum Joint Venture Account $ $ Purchases (20,000+40000 +15000+30000) 105,000 Expenses (6000+7000) 13,000 Bad Debts 500 Share of profit: Wong 8,400 Chan 2,100 $ Sales (115000+30000) 145,000 Less Return inwards 5,000 140,000 Stock taken over 6,500 Discount allowed 2,000 Commission receivable -Ordinary (9000+2000) 11,000 -Del credere 4,500 1996 10,500 146,500
  • Slide 20
  • Wong Joint Venture with Chan Account 1996 $ Debtors-return inwards 5,000 Creditors- purchases 40,000 Bills payable- purchases 15,000 Expenses 20,000 Commission receivable -Ordinary 9,000 -Del credere 4,500 Profit and Loss 8,400 Debtors-discount allowed 2,000 Bank-settlement due to Chan 20,100 Cash- purchases 20,000Bills payable-paid by Cha 15,000 Debtors-sales 115,000 130,000
  • Slide 21
  • Chan Joint Venture with Wong Account 1996 $ Debtors- Bad debts 500 Cash -paid Wongs bill 15,000 Cash - expenses 7,000 Commission receivable 2,000 Profit and Loss 2,100 Cash - purchases 30,000Debtors-sales 30,000 56,600 56,600 Stock taken over 6,500 Banksettlement from Wong 20,100
  • Slide 22
  • Intermediate Settlement 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.
  • Slide 23
  • Treatment of stock In the memorandum joint venture account, the total stock is credited and carried. In joint venture accounts, the stock can be: 1. Credited to each party individually according to the stock held by each OR 2. Divided in profit-sharing ratio and credited to each joint venture account.
  • Slide 24
  • 1. Credit to each party individually according to the stock held by each 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 Example 2
  • Slide 25
  • Wong Joint Venture with Chan Account 1996 $ Debtors-return inwards 5,000 Creditors- purchases 40,000 Bills payable- purchases 15,000 Expenses 20,000 Commission receivable -Ordinary 9,000 -Del credere 4,500 Profit and Loss 8,400 Debtors-discount allowed 2,000 Bank-settlement due to Chan 22,100 Cash- purchases 20,000Bills payable-paid by Cha 15,000 Debtors-sales 115,000 130,000 Stock c/d 2,000
  • Slide 26
  • Chan Joint Venture with Wong Account 1996 $ Debtors- Bad debts 500 Cash -paid Wongs bill 15,000 Cash - expenses 7,000 Commission receivable 2,000 Profit and Loss 2,100 Cash - purchases 30,000Debtors-sales 30,000 56,600 56,600 Stock c/d 4,500 Banksettlement from Wong 22,100
  • Slide 27
  • Wong and Chan Memorandum Joint Venture Account $ $ Purchases (20,000+40000 +15000+30000) 105,000 Expenses (6000+7000) 13,000 Bad Debts 500 Share of profit: Wong 8,400 Chan 2,100 $ Sales (115000+30000) 145,000 Less Return inwards 5,000 140,000 Stock c/d 6,500 Discount allowed 2,000 Commission receivable -Ordinary (9000+2000) 11,000 -Del credere 4,500 1996 10,500 146,500
  • Slide 28
  • 2. Divided in profit-sharing ratio and credited to each joint venture account Refer to example 1, there was an intermediated settlement at that date. The total closing stock was $6,500. Example 3
  • Slide 29
  • Wong Joint Venture with Chan Account 1996 $ Debtors-return inwards 5,000 Creditors- purchases 40,000 Bills payable- purchases 15,000 Expenses 20,000 Commission receivable -Ordinary 9,000 -Del credere 4,500 Pro