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In today’s class, we will be talking about joint venture accounts. Enjoy the class!
Joint Venture Accounts
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:
- Individual Joint Ventures Account: basically, the individual in joint ventures prepares joint ventures to account affecting him in his books.
- 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.
- Debits all expenses to individual Joint Venture account.
- Credited all revenue to Individual Joint Venture account.
- In Memorandum Joint Venture account.
- Credit both revenue of Joint Venture.
- Debits both expenses of Joint Ventures.
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
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
Mar. 1 Balance 1,988 Mar. 3 Cheque from Biodun 1,988
(b) In the books of Kola and Biodun:
Memorandum Joint Ventures Accounts
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
- Define Joint Venture.
- Mention the major accounts prepared in Joint Venture.
We hope you enjoyed the class.
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