ACCOUNTING FOR JOINT VENTURE

Notes 18 Pages
University MES INSTITUTE OF MANAGEMENT
Course Financial Management
HRK

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Hanuman Ram Korpal
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  • ADVANCED FINANCIAL ACCOUNTING_2ND SEMESTER B.COM_BANGALORE CENTRAL UNIVERSITY
    Vinutha T.N, Assistant Professor, MES Institute of Management
    1
    UNIT 3: ACCOUNTING FOR JOINT VENTURE
    Business organisations are formed to carry out businesses under challenging circumstances,
    this would either result in organisations earning profits or incurring losses, which could lead to
    closure of the business permanently. The challenges faced by the businesses can be overcome
    if two or more such persons join hands to jointly carry on specific businesses on agreed terms
    and conditions and also to share the profits and losses arising therefrom.
    MEANING OF JOINT VENTURE
    Joint venture is also termed as Joint Adventure or Trade. It is a business or specific task carried
    jointly by two or more persons for a short duration; after the completion of the specific task or
    business or project, the venture gets wound up automatically. It is a venture carried on by two
    or more persons by contributing capital as per the agreed terms and conditions and also sharing
    jointly and severally the profits and losses arising therefrom. In other words, it is a partnership
    without a firm name and the parties to the joint venture are called as 'Co-Venturers’. Upon
    completion of the intended business activity or the duration for which it is formed, the venture
    comes to an end and is wound up automatically. Examples of joint ventures are underwriting
    of shares and debentures. purchase and sale of properties and stocks of liquidated companies,
    speculation in shares, construction or contract businesses, and joint consignment of goods, etc.
    DEFINITION OF JOINT VENTURE
    As per Ind AS 28. a Joint Venture is a Joint Arrangement whereby the parties that have Joint
    Control of the arrangement have rights to the net assets of the arrangement. Joint Arrangement
    is an arrangement in which two or more parties have joint control. Joint Control is the
    contractually agreed sharing of control of an arrangement, which exists only when decisions
    about the relevant activities require the unanimous consent of the parties sharing control.
    FEATURES OF JOINT VENTURE
    1. It is a temporary business organisation formed by two or more persons to carry out a
    specific task or venture.
    2. It is not based on the accounting concept of 'Going Concern".
    3. It is quite similar to the form of partnership but has no firm name or registration
    separately under any law.
    4. It is constituted on the basis of an agreement between the parties termed as
    'co-venturers", to share profits and losses in an agreed ratio. In the absence of the
    agreed ratio in the agreement, the profits or losses get shared between the co-ventures
    equally.
    5. It facilitates joint control of the co-venturers over the assets, administration, operations
    and the venture itself.
    6. The computation of profit or loss of a joint venture is usually done on the completion
    of the venture. However, if the joint venture constituted is for a longer duration, then,
    the profit or loss may be computed annually.
    7. The venture gets wound up automatically on the completion of the venture or task.

    Page 1

  • ADVANCED FINANCIAL ACCOUNTING_2ND SEMESTER B.COM_BANGALORE CENTRAL UNIVERSITY
    Vinutha T.N, Assistant Professor, MES Institute of Management
    2
    8. The joint venture agreement entered into between the co-venturers is valid only for a
    specific Joint task alone and gets terminated on the completion of the specific tasks
    9. It generally observes cash basis of accounting, to an extent that the assets and liabilities
    are usually paid off in cash or also shared by the co-venturers in the agreed ratio,
    10. The co-venturers are not prevented from carrying on their own separate businesses
    unless they are forbidden to do so by Joint Venture agreement.
    OBJECTIVES OF JOINT VENTURE
    1. To facilitate pooling of capital, resources and expertise to be employed in a venture to
    earn profits
    2. To facilitate large-scale production and attain economies of scale by culmination of
    manpower, know-how, expertise in operations
    3. To reduce the overall cost involved, improvise on quality and obtain greater access to
    different techniques of production, operations, marketing and promotion
    4. To expand the market and customer base by entering new, emerging and international
    markets that further leads to widened market share
    5. To mitigate risk associated with business or operations
    6. To pool huge capital required for investment, which is otherwise not possible
    individually
    7. To achieve synergy in either procuring of capital, technology or resources
    8. To make optimum use of resources
    MEANING OF CO-VENTURERS
    Co-venturers are the persons, parties or partners who subscribe their signatures to the joint
    venture agreement. They come together to form a business temporarily under no name or
    registration under any law to attain short-term goals. They agree to contribute capital to carry
    out a particular venture and share profits or losses on agreed terms. The co-venturers liability
    is unlimited in the event their venture suffers huge losses. Any assets or liabilities after the
    winding up of venture may be shared among the co-venturers in the agreed ratio if the
    agreement provides so. Examples of co-venturers are contractors (contract businesses),
    engineers (construction businesses) stockbrokers (underwriting of shares or speculation of
    shares), consignees (consignment of goods) and dealers, etc.
    ADVANTAGES AND DISADVANTAGES OF JOINT VENTURE
    Advantages
    1. Joint venture facilitates earning profits at low cost and expand customer base as well as
    market share
    2. Co-venturers are not restricted from running their own businesses along with the joint
    ventures,
    3. Joint venture form of business facilitates easy access to technology, capital, resources,
    skills, etc. It further facilitates large-scale production and manufacturing at low cost
    and optimum use of resources
    4. There is an option of terminating a joint venture in the event it is not profitable

    Page 2

  • ADVANCED FINANCIAL ACCOUNTING_2ND SEMESTER B.COM_BANGALORE CENTRAL UNIVERSITY
    Vinutha T.N, Assistant Professor, MES Institute of Management
    3
    5. It facilitates overcoming or reducing risk associated with conducting of business.
    Disadvantages
    1. If Joint venture incurs huge losses, the liability of the co-venturers is unlimited.
    2. Difference of opinion among the co-venturers may affect the functioning of joint
    venture
    3. As there is no restriction to carrying on similar businesses or to compete, the co-
    ventures may carry business ideas or business secrets into their businesses.
    4. Due to unclear objectives and roles, it often leads to conflict among the co-venturers.
    DIFFERENCES BETWEEN JOINT VENTURE AND CONSIGNMENT
    Basis
    Joint Venture
    Consignment
    Nature
    It is a form of partnership
    with no name or registration
    under any law.
    It is expansion of business by
    principal through agent/s.
    Parties
    The parties to the joint
    venture are termed as
    'co-venturers'.
    The parties to the consignment
    are consignor and consignee.
    Association
    The association between the
    co-venturers is that of
    partners.
    The association between the
    consignor and consignee is
    that of principal and agent.
    Membership
    The joint venture so formed
    may comprise two or more
    persons.
    Consignment arrangement
    comprises one' consignor and
    one or more consignees.
    Scope of business
    The joint venture can be for
    different types of business or
    services.
    Consignment pertains only to
    sale of movable goods.
    Sharing of profit/loss
    The profit or loss arising
    from the venture is shared
    among the co-venturers in
    the agreed ratio or equally
    as agreed in the agreement.
    The concept is sharing profit
    or loss does not apply in this
    case, as a result of which, the
    consignee gets only the
    commission.
    Rights of parties
    The co-venturers have equal
    power on purchase/ sale of
    assets or collection of dues,
    they enjoy equal right in a
    joint venture.
    Consignor enjoys the rights of
    principal whereas, consignee
    enjoys rights of agent.
    Duration
    Joint venture gets terminated
    on the completion of the
    venture
    Consignment continues
    according to the willingness of
    both the parties

    Page 3

  • ADVANCED FINANCIAL ACCOUNTING_2ND SEMESTER B.COM_BANGALORE CENTRAL UNIVERSITY
    Vinutha T.N, Assistant Professor, MES Institute of Management
    4
    DIFFERENCES BETWEEN JOINT VENTURE AND PARTNERSHIP
    Basis
    Joint Venture
    Partnership
    Nature
    It is a form of Partnership
    with no name or registration
    under any law
    It is a Partnership with
    name, registered and guided
    by the Partnership Act
    Parties
    Parties are termed as
    ‘Co-Venturers’
    Parties are termed as
    ‘Partners’
    Ascertainment of Profit
    Profit of Joint Venture is
    ascertained only on the
    completion of the venture
    Ascertainment of profit
    takes place annually
    Restriction on additional
    business
    Co-venturers have no
    binding on carrying on
    similar business
    Partners are restricted from
    carrying on similar business
    Books of Accounts
    It may or may not be
    maintained separately
    Separate books of accounts
    are maintained
    Duration
    Joint venture gets terminated
    on the completion of the
    venture
    Partnership gets dissolved
    only on the mutual consent
    of all the partners
    ACCOUNTING TREATMENT FOR JOINT VENTURE
    When Separate Books of Accounts are maintained
    1. Joint Venture A/c: It is a nominal Ledger A/c which incorporates the transactions
    made exclusively in the joint venture a/c to find out the profit or losses. Expenses and
    Purchases are debited & Income and Sales are credited. Finally, the Profit/Loss will be
    shared among the Co-venturers.
    ACCOUNTING TREATMENT FOR JOINT VENTURE
    When separate books of
    accounts are maintained
    1. Joint Venture A/c
    2. Co-venturers A/c
    3. Joint Bnak A/c
    When separate books of accounts are
    not maintained
    When 1 Co-venture
    maintains
    1. Joint Venture A/c
    2. Co-venturers A/c
    When all Co-venturers
    maintains books
    1. Memorandum
    Joint Venture A/c

    Page 4

  • ADVANCED FINANCIAL ACCOUNTING_2ND SEMESTER B.COM_BANGALORE CENTRAL UNIVERSITY
    Vinutha T.N, Assistant Professor, MES Institute of Management
    5
    Dr. Joint Venture A/c Cr.
    Amount
    Particulars
    Amount
    XXX
    By Joint Bank A/c
    (Sales/Income received)
    XXX
    XXX
    By Co-venturer A/c
    (Sales/Income received by
    the Co-venturer)
    XXX
    XXX
    By Co-venturer A/c
    (Assets/Unsold Stock taken
    over by the Co-venturer)
    XXX
    XXX
    By Co-venturer A/c
    (Loss – Bal Fig.)
    XXX
    XXX
    XXX
    2. Co-venturers A/c: It is similar to the Partners Capital A/c. It is prepared to account the
    contributions and items taken over by the co-venturers. Finally, it helps to find out the
    amount due from the co-venturers or amount due to them.
    Dr. Co-Venturers A/c Cr.
    Particulars
    CV 1
    CV 2
    Particulars
    CV1
    CV2
    To Joint Venture A/c
    (Sales/Income received)
    XXX
    XXX
    By Joint Venture A/c
    (Expenses paid)
    XXX
    XXX
    To Joint Venture A/c
    (Assets taken over)
    XXX
    XXX
    By Joint Venture A/c
    (Asset introduced)
    XXX
    XXX
    To Joint Venture A/c
    (Loss transferred)
    XXX
    XXX
    By Joint Venture A/c
    (Profit transferred)
    XXX
    XXX
    To Joint Bank A/c
    (Bal Fig.)
    XXX
    XXX
    By Joint Bank A/c
    (Cash introduced)
    XXX
    XXX
    By Joint Bank A/c
    (Bal Fig.)
    XXX
    XXX
    XXX
    XXX
    3. Joint Bank A/c: It is similar to normal Bank A/c. Receipts or Income will be debited
    and Payments or Expenses will be credited.
    Dr. Joint Bank A/c Cr.
    Particulars
    Amt
    Particulars
    Amt
    To Joint Venture A/c
    (Sales/Income received)
    XXX
    By Joint Venture A/c
    (Expenses paid)
    XXX
    To Co-venturer A/c
    (Cash introduced)
    XXX
    By Co-venturer A/c
    (Surplus Balance)
    XXX
    To Co-venturer A/c
    (Deficit Balance)
    XXX
    XXX
    XXX

    Page 5

  • ADVANCED FINANCIAL ACCOUNTING_2ND SEMESTER B.COM_BANGALORE CENTRAL UNIVERSITY
    Vinutha T.N, Assistant Professor, MES Institute of Management
    6
    PROBLEMS
    When separate set of books are maintained
    1. Naveen and Ashwin undertook a joint venture for construction of a college building.
    A joint bank account was opened in which Naveen deposited Rs.2,00,000 and Ashwin
    Rs. 50,000. The contract price was Rs.10,00,000. The profit of joint venture was to be
    shared as to Naveen 2/3 and Ashwin 1/3. The details of the transactions are as follows:
    Particulars
    Amount (in Rupees)
    Salaries
    30,000
    Wages
    1,80,000
    Materials Supplied by Naveen
    35,000
    Building Materials Purchased
    4,00,000
    Materials Supplied by Ashwin
    35,000
    Architect's Fees
    25,000
    Carriage
    45,000
    Machinery Purchased
    80,000
    On the completion of the contract, the unused materials of the value Rs.40,000 were
    taken over by Naveen. The machinery was sold for Rs.60,000. Mr. Ashwin was to be
    paid a remuneration of Rs.30,000 for his service, which is to be charged to the joint
    venture. Prepare the necessary ledger account.
    Solution: In the Books of Naveen and Ashwin
    Dr. Joint Venture A/c Cr.
    Particulars
    Amount
    Particulars
    Amount
    To Joint Bank A/c
    Salaries and Wages
    Materials Purchased
    Architect Fees & Carriage
    Machinery Purchased
    To Naveen A/c
    (Material Supplied)
    To Ashwin A/c
    Remuneration
    Materials Supplied
    To Profit on Joint Venture
    (Bal. Fig.)
    Naveen (2,40,000*2/3)
    Ashwin (2,40,000*1/3)
    2,10,000
    4,00,000
    70,000
    80,000
    35,000
    30,000
    35,000
    1,60,000
    80,000
    By Naveen A/c
    (Stock taken over)
    By Joint Bank A/c
    Sale of Machinery
    Contract Price Realised
    40,000
    60,000
    10,00,000
    11,00,000
    11,00,000

    Page 6

  • ADVANCED FINANCIAL ACCOUNTING_2ND SEMESTER B.COM_BANGALORE CENTRAL UNIVERSITY
    Vinutha T.N, Assistant Professor, MES Institute of Management
    7
    Dr. Co-Venturers A/c Cr.
    Particulars
    Naveen
    Ashwin
    Particulars
    Naveen
    Ashwin
    To Joint Venture A/c
    (Stock taken over)
    To Joint Bank A/c
    (Bal Fig.)
    40,000
    3,55,000
    -
    1,95,000
    By Joint Bank A/c
    By Joint Venture A/c
    (Material Supplied)
    By Joint Venture A/c
    (Remuneration)
    By Joint Venture A/c
    (Profit)
    2,00,000
    35,000
    -
    1,60,000
    50,000
    35,000
    30,000
    80,000
    3,95,000
    1,95,000
    3,95,000
    1,95,000
    Dr. Joint Bank A/c Cr.
    Particulars
    Amt
    Particulars
    Amt
    To Naveen’s A/c (Deposit)
    To Ashwin’s A/c (Deposit)
    To Joint Venture A/c
    (Machinery Sold)
    To Joint Venture A/c
    (Contract Price Realised)
    2,00,000
    50,000
    60,000
    10,00,000
    By Joint Venture A/c
    Salaries and Wages
    Materials Purchased
    Architect Fees & Carriage
    Machinery Purchased
    To Naveen’s A/c
    To Ashwin’s A/c
    2,10,000
    4,00,000
    70,000
    80,000
    3,55,000
    1,95,000
    13,10,000
    13,10,000
    2. Naveen and Praveen entered into a joint venture to construct a building for Rs.7,50,000.
    Naveen and Praveen contributed Rs.3,75,000 and Rs.2,85,000 respectively. They
    agreed to share profits and losses in the ratio of 3:2. It was decided that the work would
    be looked after by Naveen, who would be paid 10 per cent commission on contract
    price in addition to his share of profits. Naveen bought the necessary materials for
    Rs.6,00,000 and paid Rs.18,000 for expenses. He also contributed building materials
    from his own stock worth Rs.37,500; there was an outstanding wage of Rs.9,000.
    The building was completed and the contract money was duly received. Praveen took
    over the stock of materials at an agreed value of Rs.30,000 and outstanding wages were
    paid by Naveen.
    Prepare necessary ledger accounts in the books of Naveen and Praveen.

    Page 7

  • ADVANCED FINANCIAL ACCOUNTING_2ND SEMESTER B.COM_BANGALORE CENTRAL UNIVERSITY
    Vinutha T.N, Assistant Professor, MES Institute of Management
    8
    Solution: In the Books of Naveen and Praveen
    Dr. Joint Venture A/c Cr.
    Particulars
    Amount
    Particulars
    Amount
    To Naveen A/c
    Commission (7,50,000*10%)
    Materials Purchased
    Expenses paid
    Material Supplied from own
    stock
    Outstanding wages paid
    To Profit on Joint Venture (Bal.
    Fig.)
    Naveen (40,500*3/5)
    Ashwin (40,500*2/5)
    75,000
    6,00,000
    18,000
    37,500
    9,000
    24,300
    16,200
    By Joint Bank A/c
    Contract Price Realised
    By Praveen A/c
    (Stock taken over)
    7,50,000
    30,000
    7,80,000
    7,80,000
    Dr. Co-Venturers A/c Cr.
    Particulars
    Naveen
    Praveen
    Particulars
    Naveen
    Praveen
    To Joint Venture A/c
    (Stock taken over)
    To Joint Bank A/c
    (Bal Fig.)
    -
    11,38,800
    30,000
    2,71,200
    By Joint Bank A/c
    By Joint Venture A/c
    Commission
    Materials Purchased
    Expenses
    Material Supplied
    from own stock
    O/s wages paid
    By Joint Venture A/c
    (Profit)
    3,75,000
    75,000
    6,00,000
    18,000
    37,500
    9,000
    24,300
    2,85,000
    -
    -
    -
    -
    16,200
    11,38,800
    3,01,200
    11,38,800
    3,01,200
    Dr. Joint Bank A/c Cr.
    Particulars
    Amt
    Particulars
    Amt
    To Naveen’s A/c (Deposit)
    To Ashwin’s A/c (Deposit)
    To Joint Venture A/c
    (Contract Price Realised)
    3,75,000
    2,85,000
    7,50,000
    To Naveen’s A/c
    To Praveen’s A/c
    11,38,000
    2,71,200
    14,10,000
    14,10,000

    Page 8

  • ADVANCED FINANCIAL ACCOUNTING_2ND SEMESTER B.COM_BANGALORE CENTRAL UNIVERSITY
    Vinutha T.N, Assistant Professor, MES Institute of Management
    9
    3. Charith and Chinmay entered into a joint venture and agreed to share profits and in the
    ratio of 3:2 after providing for interest on capital at 10% p.a.
    A joint bank account was opened in which Charith deposited Rs.4,00.000 and Chinmay
    deposited Rs.2,00,000 on 1st April 2017. Goods purchased for Rs.3,75,000 in cash and
    were sent to Bengaluru agent for sale.
    Freight and insurance amounted to Rs.7,500 was paid. All the goods were sold by the
    agent Rs.7,00,000. The agent remitted the balance amount after deducting his
    commission at 3% and expenses of Rs.4,000. Prepare:
    a) Joint venture account
    b) Co-venture's account
    c) Joint bank account
    d) Agent's account in the books of joint venture
    Solution: In the Books of Charith and Chinmay
    Dr. Joint Venture A/c Cr.
    Particulars
    Amount
    Particulars
    Amount
    To Agent’s A/c
    Commission (7,00,000*3%)
    Expenses
    To Joint Bank A/c
    Goods Purchased
    Freight and Insurance
    To Interest on Capital
    Charith (4,00,000*10%)
    Chinmay (2,00,000*10%)
    To Profit on Joint Venture
    (Bal. Fig.)
    Charith (2,32,500*3/5)
    Chinmay (2,32,500*3/5)
    21,000
    4,000
    3,75,000
    7,500
    40,000
    20,000
    1,39,500
    93,000
    By Agent’s A/c (Sales)
    7,00,000
    7,00,000
    7,00,000
    Dr. Co-Venturers A/c Cr.
    Particulars
    Charith
    Chinmay
    Particulars
    Charith
    Chinmay
    To Joint Bank A/c
    (Bal Fig.)
    5,79,500
    3,13,000
    By Joint Bank A/c
    By Joint Venture A/c
    Profit
    Interest on Capital
    4,00,000
    1,39,500
    40,000
    2,00,000
    93,000
    20,000
    5,79,500
    3,13,000
    5,79,500
    3,13,000

    Page 9

  • ADVANCED FINANCIAL ACCOUNTING_2ND SEMESTER B.COM_BANGALORE CENTRAL UNIVERSITY
    Vinutha T.N, Assistant Professor, MES Institute of Management
    10
    Dr. Joint Bank A/c
    Cr.
    Particulars
    Amt
    Particulars
    Amt
    To Charith’s A/c (Deposit)
    To Chinmay’s A/c (Deposit)
    To Agent’s A/c (Sales)
    4,00,000
    2,00,000
    7,00,000
    By Joint Venture A/c
    Goods Purchased
    Freight and Insurance
    By Agent’s A/c
    Agent’s Commission
    Agent’s Expenses
    By Charith’s A/c
    By Chinmay’s A/c
    3,75,000
    7,500
    21,000
    4,000
    5,79,500
    3,13,000
    13,10,000
    13,10,000
    Dr. Agent’s A/c Cr.
    Particulars
    Amt
    Particulars
    Amt
    To Joint’s Bank A/c
    Agent’s Commission
    Agent’s Expenses
    To Joint Venture A/c
    21,000
    4,000
    7,00,000
    By Joint Bank A/c
    By Joint Venture A/c
    Agent’s Commission
    Agent’s Expenses
    7,00,000
    21,000
    4,000
    7,25,000
    7,25,000
    4. Jayanth, Kumar and Lakshman entered into a joint venture and agreed to share profits
    and losses in the ratio of their capital contributions. They contributed Rs.2,50,000;
    Rs.1,50,000 and Rs.1,00,000 respectively into the joint bank account. The purchases
    and sales were as follows:
    Credit Purchases from A Ltd. Rs.5,00,000
    Credit Purchases from B Ltd. Rs.3,00,000
    Cash Purchases from C Ltd. Rs.4,00,000
    Cash Sales Rs. 9,00,000
    Credit Sales to C Ltd. Rs.6,50,000
    Office expenses Rs.30,000, the unsold goods were taken over by Kumar at an agreed
    value of Rs.20,000. Lakshman is entitled to a special commission of 5% on gross sales.
    All balances were settled through Joint Bank Account at the end. Prepare:
    a) Joint Venture Account
    b) Joint Bank Account
    c) A's Ltd Account
    d) B's Ltd Account
    e) C's Ltd Account
    f) Co-venturers Account

    Page 10

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