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.
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 Account Memorandum Joint Venture account
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.
Transactions In Firm A’s book
In Firm B’s 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
Transactions In Firm A’s book
In Firm B’s 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
Transactions In Firm A’s book In Firm B’s 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
Transactions In Firm A’s book In Firm B’s 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
Transactions In Firm A’s book
In Firm B’s 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 entry Dr Bad Debts
Cr Debtors
Transactions In Firm A’s book
In Firm B’s 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
Transactions In Firm A’s book In Firm B’s 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 entry No Entry
21 Assets taken for personal use by Firm A.
Dr Drawings
Cr Joint Venture with B Account
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 (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
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.
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.
Firm A and Firm BMemorandum Joint Venture Account
$ $
Purchases XLess Returns outwards X X
Expenses XBad Debts X Discount Allowed XProfit - A X - B X X
$
Sales XLess Return inwards X XDiscount received XAsset taken over XStock taken over X
X X
Example 1
WongJoint Venture with Chan Account
1996 $ 1996 $
Debtors-return inwards 5,000
Creditors- purchases 40,000Bills payable- purchases 15,000
Expenses 20,000Commission receivable-Ordinary 9,000-Del credere 4,500
Debtors-discount allowed 2,000
Cash- purchases 20,000 Bills payable-paid by Cha 15,000Debtors-sales 115,000
ChanJoint Venture with Wong Account
1996 $ 1996 $
Debtors- Bad debts 500
Cash -paid Wong’s bill 15,000Cash - expenses 7,000Commission receivable 2,000
Cash - purchases 30,000 Debtors-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 500
Share of profit:Wong 8,400 Chan 2,100
$
Sales (115000+30000) 145,000Less Return inwards 5,000 140,000Stock taken over 6,500
Discount allowed 2,000Commission receivable-Ordinary (9000+2000) 11,000-Del credere 4,500
19961996
10,500
146,500 146,500
WongJoint Venture with Chan Account
1996 $ 1996 $
Debtors-return inwards 5,000
Creditors- purchases 40,000Bills payable- purchases 15,000
Expenses 20,000Commission receivable-Ordinary 9,000-Del credere 4,500
Profit and Loss 8,400Debtors-discount allowed 2,000
Bank-settlement due to Chan 20,100
Cash- purchases 20,000 Bills payable-paid by Cha 15,000Debtors-sales 115,000
130,000 130,000
ChanJoint Venture with Wong Account
1996 $ 1996 $
Debtors- Bad debts 500
Cash -paid Wong’s bill 15,000Cash - expenses 7,000Commission receivable 2,000
Profit and Loss 2,100
Cash - purchases 30,000 Debtors-sales 30,000
56,600 56,600
Stock taken over 6,500Bank–settlement from Wong 20,100
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.
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.
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
WongJoint Venture with Chan Account
1996 $ 1996 $
Debtors-return inwards 5,000
Creditors- purchases 40,000Bills payable- purchases 15,000
Expenses 20,000Commission receivable-Ordinary 9,000-Del credere 4,500
Profit and Loss 8,400Debtors-discount allowed 2,000
Bank-settlement due to Chan 22,100
Cash- purchases 20,000 Bills payable-paid by Cha 15,000Debtors-sales 115,000
130,000 130,000
Stock c/d 2,000
ChanJoint Venture with Wong Account
1996 $ 1996 $
Debtors- Bad debts 500
Cash -paid Wong’s bill 15,000Cash - expenses 7,000Commission receivable 2,000
Profit and Loss 2,100
Cash - purchases 30,000 Debtors-sales 30,000
56,600 56,600
Stock c/d 4,500Bank–settlement from Wong 22,100
Wong and ChanMemorandum Joint Venture Account
$ $
Purchases (20,000+40000+15000+30000) 105,000Expenses (6000+7000) 13,000 Bad Debts 500
Share of profit:Wong 8,400 Chan 2,100
$
Sales (115000+30000) 145,000Less Return inwards 5,000 140,000Stock c/d 6,500
Discount allowed 2,000Commission receivable-Ordinary (9000+2000) 11,000-Del credere 4,500
19961996
10,500
146,500 146,500
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
WongJoint Venture with Chan Account
1996 $ 1996 $
Debtors-return inwards 5,000
Creditors- purchases 40,000Bills payable- purchases 15,000
Expenses 20,000Commission receivable-Ordinary 9,000-Del credere 4,500
Profit and Loss 8,400Debtors-discount allowed 2,000
Bank-settlement due to Chan 25,300
Cash- purchases 20,000 Bills payable-paid by Cha 15,000Debtors-sales 115,000
130,000 130,000
Stock c/d (6500*4/5) 5,400
ChanJoint Venture with Wong Account
1996 $ 1996 $
Debtors- Bad debts 500
Cash -paid Wong’s bill 15,000Cash - expenses 7,000Commission receivable 2,000
Profit and Loss 2,100
Cash - purchases 30,000 Debtors-sales 30,000
56,600 56,600
Stock c/d (6500*1/5) 1,300Bank–settlement from Wong 25,300
Joint Venture in Final Accounts In profit and loss account:
Profit and loss account (Extract)
$Gross Profit X Profit from Joint venture X
On Balance Sheet:Balance Sheet (Extract)
$ $Current AssetsStock-normal business X-joint venture X X
Joint Venture a/c(if it is debit balance) X
Current LiabilitiesJoint Venture a/c(if it is credit balance) 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.
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