Joint Venture Account SS3 Financial Accounting Lesson Note

CONTENT

1. Definition of Joint Venture.
2. Accounting entries are required for joint ventures.
3. Practical illustration of joint ventures.

Definition

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

Joint Venture is not a going concern.

Major accounts prepared are:

1. Individual Joint Ventures Account: basically, the individual in joint ventures prepares joint venture accounts 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

1. Debits all expenses to an individual Joint Venture account.
2. Credited all revenue to Individual Joint Venture accounts.
3. In Memorandum Joint Venture account.

1. Credit both revenue of Joint Venture.
2. Debits both expenses of Joint Ventures.

EVALUATION QUESTIONS:

1. State three similarities between Joint Venture and Partnership.
2. List four differences between Joint Venture and Partnership.

Practical Illustration: Biodun (Kaduna-based) and (Kola Lagos-based) agreed to enter into a 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 a ratio of 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, with transport expenses of N600

27 Biodun sold goods for N10,200

    Prepare:     (a) Individual Joint Venture account

(b) Memorandum Joint Ventures account

Note: In an individual Joint Ventures account, if the balance b/d is on the credit side, it implies that the person 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 Question

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

Reading Assignment:  

• Essential Financial Accounting page 343-348

WEEKEND ASSIGNMENT

1. The major accounts in Joint Venture are ____________ (a) Individual Joint Ventures account and memorandum    (b) Profit and Loss account and balance sheet    (c) appropriation account and balance sheet   (d) cash book and ledger.
2. Expenditure of each joint venture is ____________ (a) credited     (b) debited    (c) all of the above     (d) none of the above 

1. Revenue of each joint venture is ______ (a) credited    (b) debited     (c) none of the above   (d) all of the above

1. In the memorandum account, revenue is _______ (a) Debited      (b) Credited        (c) averted       (d) included

1. In the memorandum account expenditure is ______________ (a) included      (b) excluded        (c) debited      (d) credited

THEORY

A & B entered into a Joint Venture in a consignment of 100 articles each costing N10.

A supplies such goods and sends them to B for sale, paying carriage there on N20. B is to have a 10% commission on sales and the profit divided in the ratio of 2:1 

It was found that 10 articles were below standard, and it was agreed that.  A would take them back and sell them as his goods without commission and loss thereon being borne solely by A.  It was further agreed that at the same time, 5 articles be returned to A as he was in a position to effect a sale (on account of the Joint Venture) at N18 each, being a better price than what B could get.  B sells the remaining articles (less 3 articles taken over by him at an agreed price of N 11 each) at N14 each.  The carriage on the goods returned by B to A is N4, and it is agreed that N2 thereof relate to the cost of returning the articles and is to be borne by A.  

Show the accounts of A in B’s books.  B in A’s books and Memorandum Joint  Venture Account.

GENERAL EVALUATION/REVISION QUESTIONS

1. Explain the following : (a) bank loan (b) bank overdraft (c) standing order (d credit transfer
2. State five reasons for making provision for depreciation on fixed assets
3. List four accounts found in each of the following (a) nominal ledger (b) private ledger (c) general ledger
4. What is the difference between depreciation and amortisation
5. List five examples each of assets associated with depreciation and amortisation