Joint Venture Accounts

 

Welcome to class! 

In today’s class, we will be talking about joint venture accounts. Enjoy the class!

Joint Venture Accounts

Joint Venture Accounts | classnotes.ng

A joint venture is a business relationship of two or more persons or venturers, for the purpose of carrying on a particular transaction with the aim of profit-making. The principle of Joint Venture borrows from the partnership but the difference is that the Venture ceases operation immediately the purpose of its establishment is achieved.

Joint Venture is not a going concern.

Major account prepared are:

  1. Individual Joint Ventures Account: basically, the individual in joint ventures prepares joint ventures to account affecting him in his books.
  2. Memorandum Joint Venture Account: This is a profit and loss account of joint ventures. In this account, profit or loss attributed to each joint-venture is ascertained and shared between the individuals concerned.
Accounting entries
  • Debits all expenses to individual Joint Venture account.
  • Credited all revenue to Individual Joint Venture account.
  • In Memorandum Joint Venture account.
  1. Credit both revenue of Joint Venture.
  2. Debits both expenses of Joint Ventures.
Practical Illustration

Biodun (Kaduna based) and (Kola Lagos based) agreed to enter into Joint Venture in 1992, for the purchase of textile materials in Onitsha and resell.

 

Biodun and Kola agreed to share the profit or loss in ratio 3:2 respectively.  The following transactions took place.

1992 Feb. 1 Biodun made a cash purchase of goods N2,200

4 Kola bought N3,500 worth of goods

10 Biodun purchased goods for N4,000

15 Biodun sold goods for cash N5000 selling expenses  N430

20 Kola sold goods for cash, N6,500

25 The remaining items were dispatched to Kaduna by Kola, transport expenses N600

27 Biodun sold goods N10,200

 

Prepare:        (a) Individual Joint Venture account

(b) Memorandum Joint Ventures account

Note: In individual Joint Ventures account, if balance b/d is in the credit side, it implies that the persons or firm has received more than he is entitled to.  So he needs to pay the amount of the balance to the other party who has received less than his entitlement.

          (a) In the books of Biodun:

Solution                                        Joint Ventures with Kola                           

1992                                                     N                   1992                                                      N

Feb. 1             Purchases                 2,200              Feb. 15                      Sales                 5,000

“      4             Purchases                 4,000                                                  Sales              10,200

“     15             Selling expenses       430

“     29             Share of profit         6,582

“                      Bal. c/d                      1988

15,200                                                                           15,200

Mar. 3 Cheque to Kola               1,988                M. I  Balance b/d                             1,988

In the Books of Kola:

Joint Venture with Biodun

1992                                          N                              1992                                          N

Feb. 4             Purchases         3,500                      Feb. 29          Sales               6,500

25 Transports Exp.    600                          29  Balance c/d            1,988

29               Share of Profit   4,388

8,488                                                                     8,488

Mar. 1                        Balance 1,988            Mar. 3 Cheque from Biodun   1,988

 

(b) In the books of Kola and Biodun:

 

Memorandum Joint Ventures Accounts

1992                                                                           1992

Purchases:    Biodun                       6,200                          Sales Biodun                        15,200

Kola                            3,500                                      Kola                            6,500

Selling exp. Biodun               430

Transport exp. Kola                           600

Share of profit                              10,730

Biodun (3/5 x 10, 790)                   6,582

Kola (2/5 x 10,970)                         4,388

21,700                                                                       21,700

Evaluation 

  1. Define Joint Venture.
  2. Mention the major accounts prepared in Joint Venture.

 

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