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 Dr Joint Venture No Entry
purchases. with B Account
Cr Cash
2 Goods supplied Dr Joint Venture No Entry
for the joint venture with B Account
by firm A from its Cr Purchases
own stock
3 Firm A made Dr Joint Venture No Entry
credit purchases with B Account
Cr Creditors
4 Returns outwards Dr Creditors No Entry
made by Firm A Cr Joint Venture
with B Account
Transactions In Firm A’s book In Firm B’s book
5 Firm A purchases Dr Joint Venture No Entry
goods and settled by with B Account
accepting bill. Cr Bills Payable
6 Bills accepted by Dr Bills Payable Dr Joint Venture
Firm A on behalf of Cr Joint Venture with A Account
the joint venture and with B Account Cr Cash
paid by Firm B.
7 Firm A received Dr Creditors No Entry
discounts from joint Cr Joint Venture
venture suppliers. with B Account
8 Expenses incurred Dr Joint Venture No Entry
by Firm A on behalf with B Account
of joint venture. Cr Cash
Transactions In Firm A’s book In Firm B’s
book
9 Firm A received or Dr Joint Venture with No Entry
was entitled B Account
commissions of any Cr Commission
kind. receivable /P &L
10 Firm A made Dr Cash No Entry
cash sales Cr Joint Venture with
B Account
11 Firm A made Dr Debtors No Entry
credit sales. Cr Joint Venture with
B Account
12 Firm A made Dr Bill Receivable No Entry
credit sales and Cr Joint Venture with
settled by receiving B Account
acceptance of a bill.
Transactions In Firm A’s book In Firm B’s
book
13 Joint venture Dr Joint Venture with No Entry
customers returned B Account
goods to Firm A Cr Debtors
14 Discount allowed Dr Joint Venture with No Entry
to joint venture B Account
customers by Firm Cr Debtors
A
15 Bad debts Dr Joint Venture with No Entry
incurred from joint B Account
ventures sales made Cr Debtors
by Firm A
Transactions In Firm A’s In Firm B’s book
book
16 Bad debts incurred No entry Dr Bad Debts
and borne by Firm B Cr Debtors
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.)
Transactions In Firm A’s In Firm B’s book
book
17 Bad debts incurred Dr Joint Venture Dr Bad Debts
and Firm A, but borne with B Account Cr Joint venture
by Firm B ( Firm B Cr Debtors with A Account
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.)
Transactions In Firm A’s book In Firm B’s book
18 Firm A sent a cheque Dr Joint Venture Dr Bank
to Firm B to finance the with B Account Cr Joint Venture
joint venture. Cr Bank with A Account
19 Firm A purchased Dr Joint Venture No Entry
goods on behalf of the with B Account
joint venture and sent Cr Cash
them to Firm B.
20 Firm A sent some No entry No Entry
goods or assets of the
joint venture to Firm B.
21 Assets taken for Dr Drawings No Entry
personal use by Firm A. Cr Joint Venture
with B Account
Transactions In Firm A’s book In Firm B’s book
22 Unsold stock Dr Stock No Entry
taken over by Firm Cr Joint Venture with
A B Account
23Share of the profit Dr Joint Venture with Dr P &L
(Reverse the entries B Account Cr Joint Venture
if there is a loss). Cr P &L with A Account
24Settlement due to Dr Joint Venture with Dr Bank
Firm B B Account Cr Joint Venture
Cr Bank with A Account
(Reverse the entries if
payment is due from
Firm B)
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 B
Memorandum Joint Venture Account
$ $ $
Purchases X Sales X
Less Returns outwards X X Less Return inwards X
X
Expenses X Discount received X
Bad Debts X Asset taken over X
Discount Allowed X Stock taken over X
Profit - A X
-B X X
X X
Example 1
 Wong
Joint Venture with Chan Account
1996 $ 1996 $
Cash- purchases 20,000 Bills payable-paid by Cha 15,000
Creditors- purchases 40,000 Debtors-sales 115,000
Bills payable- purchases 15,000
Expenses 20,000
Commission receivable
-Ordinary 9,000
-Del credere 4,500
Debtors-return inwards 5,000
Debtors-discount allowed 2,000
 Chan
Joint Venture with Wong Account
1996 $ 1996 $
Cash - purchases 30,000 Debtors-sales 30,000
Cash -paid Wong’s bill 15,000 Stock taken over 6,500
Cash - expenses 7,000
Commission receivable 2,000
Debtors- Bad debts 500
 Wong and Chan
Memorandum Joint Venture Account
1996 $ $ 1996 $
Purchases (20,000+40000 Sales (115000+30000) 145,000
+15000+30000) 105,000 Less Return inwards 5,000
140,000
Expenses (6000+7000) 13,000
Stock taken over 6,500
Bad Debts 500
Discount allowed 2,000
Commission receivable
-Ordinary (9000+2000) 11,000
-Del credere 4,500

Share of profit:
Wong 8,400
Chan 2,100 10,500
146,500 146,500
 Wong
Joint Venture with Chan Account
1996 $ 1996 $
Cash- purchases 20,000 Bills payable-paid by Cha 15,000
Creditors- purchases 40,000 Debtors-sales 115,000
Bills payable- purchases 15,000
Expenses 20,000
Commission receivable
-Ordinary 9,000
-Del credere 4,500
Debtors-return inwards 5,000
Debtors-discount allowed 2,000
Profit and Loss 8,400
Bank-settlement due to
Chan 20,100
130,000 130,000
 Chan
Joint Venture with Wong Account
1996 $ 1996 $
Cash - purchases 30,000 Debtors-sales 30,000
Cash -paid Wong’s bill 15,000 Stock taken over 6,500
Cash - expenses 7,000 Bank–settlement from
Commission receivable 2,000 Wong 20,100
Debtors- Bad debts 500
Profit and Loss 2,100
56,600 56,600
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
Example 2
 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
 Wong
Joint Venture with Chan Account
1996 $ 1996 $
Cash- purchases 20,000 Bills payable-paid by Cha 15,000
Creditors- purchases 40,000 Debtors-sales 115,000
Bills payable- purchases 15,000 Stock c/d 2,000
Expenses 20,000
Commission receivable
-Ordinary 9,000
-Del credere 4,500
Debtors-return inwards 5,000
Debtors-discount allowed 2,000
Profit and Loss 8,400
Bank-settlement due to
Chan 22,100
130,000 130,000
 Chan
Joint Venture with Wong Account
1996 $ 1996 $
Cash - purchases 30,000 Debtors-sales 30,000
Cash -paid Wong’s bill 15,000 Stock c/d 4,500
Cash - expenses 7,000 Bank–settlement from
Commission receivable 2,000 Wong 22,100
Debtors- Bad debts 500
Profit and Loss 2,100
56,600 56,600
 Wong and Chan
Memorandum Joint Venture Account
1996 $ $ 1996 $
Purchases (20,000+40000 Sales (115000+30000) 145,000
+15000+30000) 105,000 Less Return inwards 5,000
140,000
Expenses (6000+7000) 13,000
Stock c/d 6,500
Bad Debts 500
Discount allowed 2,000
Commission receivable
-Ordinary (9000+2000) 11,000
-Del credere 4,500

Share of profit:
Wong 8,400
Chan 2,100 10,500
146,500 146,500
2. Divided in profit-sharing ratio and
credited to each joint venture account
Example 3
 Refer to example 1, there was an
intermediated settlement at that date.
 The total closing stock was $6,500.
 Wong
Joint Venture with Chan Account
1996 $ 1996 $
Cash- purchases 20,000 Bills payable-paid by Cha 15,000
Creditors- purchases 40,000 Debtors-sales 115,000
Bills payable- purchases 15,000 Stock c/d (6500*4/5) 5,400
Expenses 20,000
Commission receivable
-Ordinary 9,000
-Del credere 4,500
Debtors-return inwards 5,000
Debtors-discount allowed 2,000
Profit and Loss 8,400
Bank-settlement due to
Chan 25,300
130,000 130,000
 Chan
Joint Venture with Wong Account
1996 $ 1996 $
Cash - purchases 30,000 Debtors-sales 30,000
Cash -paid Wong’s bill 15,000 Stock c/d (6500*1/5) 1,300
Cash - expenses 7,000 Bank–settlement from
Commission receivable 2,000 Wong 25,300
Debtors- Bad debts 500
Profit and Loss 2,100
56,600 56,600
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 Assets Current Liabilities
Stock Joint Venture a/c
-normal business X (if it is credit balance) X
-joint venture X X
Joint Venture a/c
(if it is debit 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.