Joint Venture Account

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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. Each party to the joint venture has different responsibilities to undertake for the joint venture. - PowerPoint PPT Presentation

Text of Joint Venture Account

  • Joint Venture Account

  • Joint VentureJoint 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 Joint Venture AccountMemorandum Joint Venture account

  • Joint Venture accountEach 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.

  • TransactionsIn Firm As bookIn Firm Bs book1 Firm A made cash purchases.Dr Joint Venture with B AccountCr CashNo Entry2 Goods supplied for the joint venture by firm A from its own stockDr Joint Venture with B AccountCr PurchasesNo Entry3 Firm A made credit purchasesDr Joint Venture with B AccountCr CreditorsNo Entry4 Returns outwards made by Firm ADr CreditorsCr Joint Venture with B AccountNo Entry

  • TransactionsIn Firm As bookIn Firm Bs book5 Firm A purchases goods and settled by accepting bill.Dr Joint Venture with B AccountCr Bills PayableNo Entry6 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 AccountCr Cash7 Firm A received discounts from joint venture suppliers. Dr CreditorsCr Joint Venture with B Account No Entry8 Expenses incurred by Firm A on behalf of joint venture.Dr Joint Venture with B Account Cr CashNo Entry

  • TransactionsIn Firm As bookIn Firm Bs book9 Firm A received or was entitled commissions of any kind.Dr Joint Venture with B AccountCr Commission receivable /P &LNo Entry10 Firm A made cash salesDr Cash Cr Joint Venture with B Account No Entry11 Firm A made credit sales.Dr DebtorsCr Joint Venture with B Account No Entry12 Firm A made credit sales and settled by receiving acceptance of a bill.Dr Bill ReceivableCr Joint Venture with B Account No Entry

  • TransactionsIn Firm As bookIn Firm Bs book13 Joint venture customers returned goods to Firm ADr Joint Venture with B AccountCr DebtorsNo Entry14 Discount allowed to joint venture customers by Firm ADr Joint Venture with B Account Cr DebtorsNo Entry15 Bad debts incurred from joint ventures sales made by Firm ADr Joint Venture with B Account Cr DebtorsNo Entry

  • TransactionsIn Firm As bookIn Firm Bs book16 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 DebtsCr Debtors

  • TransactionsIn Firm As bookIn Firm Bs book17 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 AccountCr DebtorsDr Bad DebtsCr Joint venture with A Account

  • TransactionsIn Firm As bookIn Firm Bs book18 Firm A sent a cheque to Firm B to finance the joint venture.Dr Joint Venture with B AccountCr BankDr BankCr Joint Venture with A Account19 Firm A purchased goods on behalf of the joint venture and sent them to Firm B.Dr Joint Venture with B Account Cr CashNo Entry20 Firm A sent some goods or assets of the joint venture to Firm B.No entryNo Entry21 Assets taken for personal use by Firm A.Dr DrawingsCr Joint Venture with B Account No Entry

  • TransactionsIn Firm As bookIn Firm Bs book22 Unsold stock taken over by Firm A Dr StockCr Joint Venture with B AccountNo Entry23Share of the profit (Reverse the entries if there is a loss).Dr Joint Venture with B Account Cr P &LDr P &LCr Joint Venture with A Account 24Settlement due to Firm BDr Joint Venture with B Account Cr Bank(Reverse the entries if payment is due from Firm B)Dr BankCr Joint Venture with A Account

  • Memorandum Joint Venture AccountIt is dept to record the combined sales, purchases and expenses of the joint ventureThis 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 AccountIt 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 BMemorandum Joint Venture Account $ $Purchases XLess Returns outwards X XExpenses XBad Debts X Discount Allowed XProfit - A X - B X X$Sales XLess Return inwards X XDiscount received XAsset taken over XStock taken over XX X

  • Example 1

  • WongJoint Venture with Chan Account1996 $1996 $Debtors-return inwards 5,000Creditors- purchases 40,000Bills payable- purchases 15,000Expenses 20,000Commission receivableOrdinary 9,000Del credere 4,500Debtors-discount allowed 2,000Cash- purchases 20,000Bills payable-paid by Cha 15,000Debtors-sales 115,000

  • ChanJoint Venture with Wong Account1996 $1996 $Debtors- Bad debts 500Cash -paid Wongs bill 15,000Cash - expenses 7,000Commission receivable 2,000Cash - purchases 30,000Debtors-sales 30,000 Stock taken over 6,500

  • Wong and ChanMemorandum Joint Venture Account $ $Purchases (20,000+40000+15000+30000) 105,000Expenses (6000+7000) 13,000 Bad Debts 500Share of profit:Wong 8,400 Chan 2,100$Sales (115000+30000) 145,000Less Return inwards 5,000 140,000

    Stock taken over 6,500Discount allowed 2,000Commission receivableOrdinary (9000+2000) 11,000Del credere 4,5001996199610,500146,500 146,500

  • WongJoint Venture with Chan Account1996 $1996 $Debtors-return inwards 5,000Creditors- purchases 40,000Bills payable- purchases 15,000Expenses 20,000Commission receivableOrdinary 9,000Del credere 4,500Profit and Loss 8,400Debtors-discount allowed 2,000Bank-settlement due to Chan 20,100Cash- purchases 20,000Bills payable-paid by Cha 15,000Debtors-sales 115,000130,000 130,000

  • ChanJoint Venture with Wong Account1996 $1996 $Debtors- Bad debts 500Cash -paid Wongs bill 15,000Cash - expenses 7,000Commission receivable 2,000Profit and Loss 2,100Cash - purchases 30,000Debtors-sales 30,000 56,600 56,600 Stock taken over 6,500Banksettlement from Wong 20,100

  • Intermediate SettlementIf 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 stockIn the memorandum joint venture account, the total stock is credited and carried.In joint venture accounts, the stock can be:Credited to each party individually according to the stock held by each ORDivided in profit-sharing ratio and credited to each joint venture account.

  • 1. Credit to each party individually according to the stock held by eachRefer 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 4:1Example 2

  • WongJoint Venture with Chan Account1996 $1996 $Debtors-return inwards 5,000Creditors- purchases 40,000Bills payable- purchases 15,000Expenses 20,000Commission receivableOrdinary 9,000Del credere 4,500Profit and Loss 8,400Debtors-discount allowed 2,000Bank-settlement due to Chan 22,100Cash- purchases 20,000Bills payable-paid by Cha 15,000Debtors-sales 115,000130,000