CMA | Joint Ventures
JOINT VENTURES
A joint venture is a very short duration business entered into by two or more persons jointly.
There are two ways to keep records of Joint Venture:
• SEPARATE SET OF BOOKS ARE MAINTAINED
• NO SEPARATE SET OF BOOKS ARE MAINTAINED
(I) SEPARATE SET OF BOOKS ARE MAINTAINED
Initial contribution by the Co-Venturer’s in Joint bank account:
Joint Bank A/c
To Co-Venturer’s A/c
For expenses paid out of Joint Bank Account
Joint Venture A/c
To Joint Bank A/c
For material supplied by co-venturer or direct payment by co-venturer
Joint Venture A/c
To Co-venturer A/c
For Sale or payment received
Joint Bank A/c
To Joint Venture A/c
For sale or payment received directly by co-venturer
Co-venturer A/c
To Joint Venture A/c
For profit on Joint Venture
Joint Venture A/c
To Co-venturer A/c
For closing the Joint Bank A/c
Co-venturer A/c
To Joint Bank A/c
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(II) NO SEPARATE SET OF BOOKS ARE MAINTAINED
1st APPROACH: Each venture maintains accounts independently for the venture
transactions
When no separate books of accounts are maintained for joint venture, each venture maintains
accounts independently for the venture transactions. The standard practice is to keep full
records of own transactions as well as the transactions of the co-venturer relating to the
venture.
When each co-venturer keeps record of all transactions, following accounts are prepared:
i. Joint Venture Account
ii. Co-Venturer’s Account
For supply of goods to venture out of business stock
Joint Venture A/C
To Purchase A/C
For meeting expenses of venture
Joint Venture A/C
To Bank A/C
When co-venturer supplies goods and incurs expenses for venture
Joint Venture A/C
To Co Venturer A/C
For Venture Sale
Bank A/C
To Joint Venture A/C
For Venture Sale made by the Co Venturer
Co Venturer A/C
To Joint Venture A/C
For Venture Profit
Joint Venture A/C
To Profit and Loss A/C - for own’s share
To Co-Venturer A/C - for Co Venturer’s share
For Venture Loss
Profit and Loss A/C - for own’s share
Co-Venturer A/C - for Co Venturer’s share
To Joint Venture A/C
For settlement of claims
When payment is due to co-venturer
Co-Venturer A/C
To Bank A/C
When payment is due from co-venturer
Bank A/C
Co-Venturer A/C
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2ND APPROACH: Each venture keeps records of own transactions only
When each co-venturer keeps records of own transactions only, following accounts are
prepared:
i. Memorandum Joint Venture Account
ii. Joint Venture with co-venturer Account
For supply of materials from stores
Joint Venture with X A/C
To Purchase A/C
For payment of expenses
Joint Venture with X A/C
To Bank A/C
For Venture Sale
Bank A/C
To Joint Venture with X A/C
For Venture Profit
Joint Venture with X A/C
To Profit and Loss A/C
For final payment to co-venturer
Joint Venture with X A/C
To Bank A/C
For final payment made by co-venturer
Bank A/C
Joint Venture with X A/C
Sometimes the venturer’s find it useless to keep full record of venture transactions. Rather it
is considered convenient to keep record of own transactions only. For this purpose, it is
necessary to open 'Joint Venture with Co-venturer A/c'. All expenses incurred, materials sent,
etc. are debited to this account. Profit earned is also debited to this account while the loss
sustained is credited. Any receipt from joint venture or from co-venturer is credited to this
account, while any payment to the co-venturer is debited to this account, profit/loss on joint
venture cannot be determined from this account. For determination of profit/loss a
Memorandum Joint Venture Account is prepared.
Memorandum Joint Venture account is a rough statement prepared by ventures for
determination of venture profit when they do not maintain full records of venture transactions
in the books of account. Unless this account is prepared, venturer cannot compute the profits
of venture. Entries in Memorandum Joint Venture Account are directly recorded without
going through the process of journal.
Treatment of accounting:
Going concern assumption of accounting is not appropriate for joint venture accounting.
There does not arise problem of distinction between capital and revenue expenditure. Plant,
Machinery and other fixed assets when used in venture are first charged to venture account
at cost. On completion of venture, such assets are sold or taken over by co-venturers.
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CMA | Joint Ventures
JOINT VENTURE VS PARTNERSHIP
Basis of Distinction Joint Venture Partnership
Scope It is limited to a specific venture
It is not limited to a
specific venture
Persons involved The persons carrying on The persons carrying on
business are called as Co- the business are called as
ventures partners
Ascertainment of The P & L is ascertained at the The P & L are ascertained
P&L end of specific venture on an annual basis
Act Governing No specific Act is there Partnership firm are
governed by Indian
Partnership Act, 1932
Name There is no need for firm name A partnership firm always
has a name
Separate set of books There is no need for separate set Separate set of books have
of books. The accounts can be to be maintained
maintained even in one of the
co-venturer’s books only
Admission of minor A minor cannot be a co-venturer A minor can be admitted to
as he is incompetent to contract the benefits of the firm
Accounting Accounting for JV is done on Accounting for partnership
firms is done on going
liquidation basis concern basis.
JOINT VENTURE VS CONSIGNMENT
Basis of Distinction Joint Venture Consignment
1. Purpose It may be for sale of goods or for It generally involves sale of
carrying out any other activity like movable goods.
construction of building,
investment in shares, etc.
[Link] Involved The persons carrying on business The persons in the trade are
are called co-ventures. called consignor and consignee.
3. Tenure The relationship comes to an end The arrangement may continue
as soon as the venture is for a long period of time.
completed.
4. Contribution of All the co-ventures contribute funds The funds are provided by the
funds to a common pool. consignor only.
5. Sharing of profit/ The profit/loss is shared by all the The profit/loss belongs to
loss co- ventures in the agreed ratio (in consignor only. The consignee
equal ratio if agreement is silent) is entitled only to commission.
6. Ownership There is joint ownership. The consignor owns the goods.
7. Relationship The relationship between co- The relationship between
ventures is as partners to common consignor and consignee is as
purpose principle and agent.
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Ques 1
B and C enter a joint venture to prepare a film for the Government. The Government agrees to pay
₹1,00,000. B contributes ₹10,000 and C contributes ₹15,000. These amounts are paid into a Joint
Bank Account. Payments made out of the joint bank account were:
₹
Purchase of equipment 6,000
Hire of equipment 5,000
Wages 45,000
Materials 10,000
Office expenses 5,000
B paid ₹2,000 as licensing fees. On completion, the film was found defective and Government made a
deduction of ₹ 10,000. The equipment was taken over by C at a valuation of ‘2000. Separate books
were maintained for the joint venture whose profits were divided in the ratio of B-2/5 and C-3/5. Give ledger
accounts, separate sets of books are maintained.
Ques 2
Rajiv and Sanjiv enter into a joint venture as dealers in land and opened a Joint Bank Account with
₹75,000 towards which Rajeev contributed ₹50,000. They agree to share profits and losses in
proportion to their cash contribution. They purchased a plot of land measuring 5,000 square yards for
₹50,000. It was decided to sell the land in smaller plots and a plan was got prepared at a cost of
₹5,700.
In the said plan 1/5th of the total area of the land was left over for public roads and the remaining land
was divided into 8 plots of equal size. Out of 8 plots, 3 plots were sold @ ₹15 per square yard and the remaining
5 plots were sold @ ₹20 per square yard. Expenses incurred in connection with the plots were:
Registration Expenses ₹6,000, Stamp Duty ₹ 600 and Other Expenses ₹2,500. Allow 5% on the sale
proceeds as a commission to Rajiv.
Journalize the above transactions and prepare the necessary ledger accounts. Assume that
separate sets of books are maintained.
Ques 3
A and B enter into a joint venture to sell a consignment of timber sharing profits and losses equally. A
provides timber from stock at mutually agreed value of ₹5,000. He pays expenses amounting to ₹
250. B incurs further expenses on cartage, storage, and coolie charges of ₹650 and receives
cash for sales ₹ 3,000.
He also takes over goods to the value of ₹1,000 for his use in his own business. At the close, A takes
over the balance stock in hand which is valued at ₹1,100.
Prepare Joint Venture account and Co-venturer’s account in the books of A.
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Ques 4
A and B entered into a joint venture of underwriting the subscription of the entire share capital of the
Copper Mines Ltd. consisting of 1,00,000 equity shares of ₹10 each and to pay all expenses upto
allotment. The profits were to be shared by them in proportions of 3/5ths and 2/5ths. The consideration
in return for this agreement was the allotment of 12,000 other shares of ₹10 each to be issued to them
as fully paid. A provided funds for registration fees ₹12,000, advertising expenses of ₹11,000, for expenses
on printing and distributing the prospectus amounting to ₹7,500 and other printing and stationery
expenses of ₹2,000. B contributed towards payment of office rent ₹ 3,000, legal charges ₹ 13,750, salary
to clerical staff ₹ 9,000 and other petty disbursements of ₹1,750. The prospectus was issued and
applications fell short by 15,000 shares. A took over these on joint account and paid for the same in full.
The ventures received the 12,000 fully paid shares as underwriting commission. They sold their entire
holding at ₹12.50 less 50 paise brokerage per share. The net proceeds were received by A for 15,000
shares and B for 12,000 shares.
Write out the necessary accounts in the books of A showing the final adjustments.
Also pass Journal Entries in the books of B. Assume no separate sets of books are maintained
that each venturer keep all the records.
Ques 5
A and B enter into a joint venture sharing profits and losses equally. A purchased goods for ₹5,000 for
cash on January 1, 2016. On the same day, B bought goods for `10,000 on credit and spent ₹ 1,000
on freight etc.
Further expenses were incurred as follows :
On 1.2.2016 ₹ 1,500 by B
On 12.3.2016 ₹ 500 by A
Sales were made by each one of them as follows :
15.1.2016 ₹ 3,000 by A
13.1.2016 ₹ 6,000 by B
15.2.2016 ₹ 3,000 by A
1.3.2016 ₹ 4,000 by B
Creditors for goods were paid as follows:
1.2.2016 ₹ 5,000 by A
1.3.2016 ₹ 5,000 by B
On March 31, 2016 the balance of stock was taken over by B at ₹ 9,000.
The accounts between the co-venturers were settled by cash payment on this date. The co-venturers are
entitled to interest at 12% per annum.
Prepare necessary ledger accounts in the books of A assuming that he maintains record of all
venture transactions.
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CMA | Joint Ventures
Ques 6
A and B entered into a joint venture agreement to share the profits and losses in the ratio of 2:1. A supplied
goods worth ₹ 60,000 to B incurring expenses amounting to ₹ 2,000 for freight and insurance. During
transit goods costing ₹ 5,000 became damaged and a sum of ₹ 3,000 was recovered from the insurance
company. B reported that 90% of the remaining goods were sold at a profit of 30% of their original cost.
Towards the end of the venture, a fire occurred and as a result the balance Inventories lying unsold with B
was damaged. The goods were not insured and B agreed to compensate A by paying in cash 80% of the
aggregate of the original cost of such goods plus proportionate expenses incurred by A. Apart from the share
of profit of the joint venture, B was also entitled under the agreement to a commission of 5% of net profits of
joint venture after charging such commission. Selling expenses incurred by B totalled ₹ 1,000. B had earlier
remitted an advance of ₹10,000. B duly paid the balance due to A by Bank Draft.
Prepare (i) Joint Venture Account and (ii) B’s Account in A’s books.
Ques 7
Ram and Rahim enter into a joint venture to take a building contract for ₹24,00,000. They provide the
following information regarding the expenditure incurred by them:
Ram ₹ Rahim₹
Materials 6,80,000 5,00,000
Cement 1,30,000 1,70,000
Wages - 2,70,000
Architect’s fees 1,00,000 -
License fees - 50,000
Plant - 2,00,000
Plant was valued at ₹1,00,000 at the end of the contract and Rahim agreed to take it at that value.
Contract amount ₹24,00,000 was received by Ram. Profits or losses to be shared equally. You are
asked to show:
(i) Joint Venture Account and Rahim’s Account in the books of Ram.
(ii) Joint Venture Account and Ram’s Account in the books of Rahim.
Ques 8
Ram and Gautham entered into a joint venture to buy and sell TV sets, on 1st July, 2016.
On 1.7.2016, Ram sent a draft for ₹ 2,50,000 in favour of Gautham, and on 4.7.2016, the latter
purchased 200 sets each at a cost of ₹ 2,000 each. The sets were sent to Ram by lorry under freight “to pay”
for ₹ 2,000 and were cleared by Ram on 15.7.2016.
Ram executed sales in the following manner:
Date No. of sets Sale price per set Discount on sales price
16.7.2016 20 3,000 10%
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31.7.2016 100 2,800 -
15.8.2016 80 2,700 5%
On 25.8.2016, Ram settled the account by sending a draft in favour of Gautham, profits being shared
equally. Gautham does not maintain any books. Show in Ram’s book:
(i) Joint Venture with Gautham A/c; and
(ii) Memorandum Joint Venture A/c.
Ques 9
D of Delhi and M of Mumbai entered into a joint venture for the purpose of buying and selling
second-hand computers, M to make purchases and D to effect sales. The profit and loss was to be
shared equally by D and M. A sum of ₹ 1,50,000 was remitted by D to M towards the venture.
M purchased 22 old computers for ₹ 1,50,000 and paid ₹ 90,000 for their reconditioning and
sent them to Delhi. His other expenses were: Buying commission ₹10,000; Cartage ₹ 2,000
and Miscellaneous ₹ 1,000.
D took delivery of the computers and paid ₹ 2,700 for Octroi and ₹1,000 for Cartage. He sold 12
computers at ₹ 22,000 each; 4 computers at ₹21,000 and 3 computers at ₹20,000 each. He
retained remaining computers for his personal use at an agreed value of ₹15,000. His other
expenses– Insurance ₹ 2,500; Rent₹ 4,000; Brokerage
₹ 12,000 and Miscellaneous ₹ 2,000.
Each party’s ledger contains a record of his own transactions on account of joint venture. Prepare
a statement showing the result of the venture and the account of the venturer in D’s ledger as it will
finally appear, assuming that the matter was finally settled between the parties.
Ques 10
David of Mumbai and Khosla of Delhi entered into a joint venture for the purpose of buying and selling
second- hand motor cars: David to make purchases and Khosla to effect sales. The profit and loss was to
be shared equally. Khosla remitted a sum of ₹1,50,000 to David towards the venture.
David purchased 5 cars for ₹1,60,000 and paid ₹ 60,000 for their reconditioning and sent them to
Delhi. He also incurred an expense of ₹ 5,000 in transporting the cars to Delhi.
Khosla sold 4 cars for ₹ 2,40,000 and retained the fifth car for himself at an agreed value of ₹ 50,000. His
expenses were: Insurance ₹1,000; Garage Rent ₹ 2,000; Brokerage ₹ 2,000; and Sundry
Expenses ₹ 400.
Each party’s ledger contains a record of his own transactions on account of joint venture.
Prepare a Memorandum Joint Venture Account showing the result of the venture and the joint
venture account with David in the books of Khosla as it will appear, assuming that the matter
was finally settled between the parties.
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Ques 11
A of Delhi and B of Bangalore entered into a joint venture for purchase and sale of one lot of
mopeds. The cost of each moped was ₹ 3,600 and the fixed retail selling price; ₹ 4,500. The
following were the recorded transactions:
2016
Jan 1 A purchased 100 mopeds paying ₹ 72,000 in cash on account.
A raised a loan from X Bank for ₹50,000 at 18% p.a., interest repayable with
loan amount on 1.3.2016.
A forwarded 80 mopeds to B incurring ₹2,880 as forwarding and insurance
charges.
Jan. 7 B received the consignment and paid ₹ 720 as clearing charges.
A sold 5 mopeds for cash.
B sold 20 mopeds for cash.
Feb. 1 B raised a loan of ₹ 1,50,000 from Y Bank, repayable with interest at 18% pa on
1.3.2016.
B telegraphically transferred ₹1,50,000 to A incurring charges of ₹50. A paid balance
due for the mopeds.
Feb. 26 A sold the balance mopeds for cash
B sold balance mopeds for cash.
A paid selling expenses ₹ 5,000.
B paid selling expenses ₹ 20,000.
Mar. 1 Accounts settled between the venturer and loans repaid, profit being appropriated
equally.
You are required to show Memorandum Joint Venture A/c. You are also required to
show
(1) Joint Venture with B A/c in A’s books; and
(2) Joint Venture with A A/c in B’s books.
Assume each venturer recorded only such transactions as concluded by him.
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MCQs
1. M and N enter into a Joint venture where M supplies goods worth ₹ 6,000 and spends ₹ 100
on various expenses. N sells the entire lot for ₹7,500 meeting selling expenses
amounting to ₹ 200. Profit sharing ratio is equal. N remits to M the amount due. The
amount of remittance will be:
(a) ₹ 6,700 (b) ₹ 7,300 (c) ₹ 6,400 (d) ₹ 6,800
2. A purchased goods costing ₹ 42,500. B sold goods costing ₹ 40,000 at ₹ 50,000.
Balance goods were taken over by A at same gross profit percentage as in case of sale.
The amount of goods taken over will be:
(a) ₹ 3,125 (b) ₹ 2,500 (c) ₹ 3,000 (c) ₹ 4,000
3. For material supplied from own Inventories by any of the venturer, the correct journal
entry will be: (In case of separate sets of books)
(a) Joint Venture A/c will be debited and Venturers Capital A/c will be credited
(b) Joint Venture A/c will be debited and Joint Bank A/c will be credited
(c) Joint Venture A/c will be debited and Material A/c will be credited
(d) None
4. A and B enter into a joint venture to underwrite the shares of K Ltd. K Ltd make an
equity issue of 1,00,000 equity shares of ₹10 each. 80% of the issue was subscribed
by the public. The profit sharing ratio between A and B is 3:2. The balance shares not
subscribed by the public, purchased by A and B in profit sharing ratio. How many
shares to be purchased by A.
(a) 80,000 shares (b) 72,000 shares (c) 12,000 shares (d) 24,000 shares
5. A and B enter into a joint venture to underwrite shares of K Ltd. K Ltd make an equity
issue of 2,00,000 equity shares. 80% of the shares underwritten by the venturer.
1,60,000 shares are subscribed by the public. How many shares are to be subscribed
by the venturer?
(a) 40,000 shares (b) 36,000 shares (c) 48,000 shares (d) 32,000 shares
6. P and Q enter into a Joint Venture sharing profits and losses in the ratio 3:2. P
purchased goods costing ₹2,00,000. Other expenses of P ₹10,000. Q sold the goods for
180,000. Remaining goods were taken over by Q at ₹ 20,000. The amount of final
remittance to be paid by Q to P will be:
(a) ₹ 2,15,000 (b) ₹ 2,04,000 (c) ₹ 2,10,000 (d) ₹ 2,40,000
7. C and D entered into a Joint Venture to construct a bridge. They did not open separate
set of books. They shared profits and losses as 3:2. C contributed ₹ 1,50,000 for purchase
of materials. D paid wages amounting to ₹ 80,000. Other expenses were paid as:
C – ₹ 5,000 D – ₹ 15,000
C purchased one machine for ₹ 20,000. The machine was taken over by C for ₹10,000.
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Total contract value of ₹3,00,000 was received by D. What will be the profit on
venture?
(a) ₹ 30,000 (b) ₹ 40,000 (c) ₹ 20,000 (d) ₹ 25,000
8. R and M entered into a joint venture to purchase and sell new year gifts. They agreed to
share the profit and losses equally. R purchased goods worth ₹ 1,00,000 and spent ₹
10,000 in sending the goods to M. He also paid ₹ 5,000 for insurance. M spent ₹
10,000 as selling expenses and sold goods for ₹ 2,00,000. Remaining goods were taken
over by him at ₹ 5000. What will be the amount to be remitted by M to R as final
settlement?
(a) ₹ 1,55,000 (b) ₹ 1,50,000 (c) ₹ 11,5000 (d) ₹ 11,1500
9. A and B enter into a joint venture sharing profit and losses in the ratio 3:2. A will
purchase goods and B will affect the sale. A purchase goods costing ₹ 200,000. B sold it
for ₹ 3,00,000. The venture is terminated after 3 months. A is entitled to get 10% interest
on capital invested irrespective of utilization period. The amount of interest received by A
will be
(a) ₹ 15,000 (b) ₹ 10,000 (c) ₹ 20,000 (d) ₹ 25,000
10. If any Inventories is taken over by the venturer, it will be treated as an:
(a) No Accounting Entry
(b) Expenses of Joint Venture, hence debited to Joint Venture Account
(c) To be ignored as Joint Venture Transaction
(d) Income of the joint venture, hence credited to Joint Venture Account
Answers:
1 a 2 a 3 a 4 c 5 d
6 b 7 b 8 a 9 c 10 d
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