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 As book In Firm Bs book
1 Firm A made cash
purchases.
Dr Joint Venture
with B Account
Cr Cash
No Entry
2 Goods supplied
for the joint venture
by firm A from its
own stock
Dr Joint Venture
with B Account
Cr Purchases
No Entry
3 Firm A made
credit purchases
Dr Joint Venture
with B Account
Cr Creditors
No Entry
4 Returns outwards
made by Firm A
Dr Creditors
Cr Joint Venture
with B Account

No Entry
Transactions In Firm As book In Firm Bs book
5 Firm A purchases
goods and settled by
accepting bill.
Dr Joint Venture
with B Account
Cr Bills Payable
No Entry
6 Bills accepted by
Firm A on behalf of
the joint venture and
paid by Firm B.
Dr Bills Payable
Cr Joint Venture
with B Account
Dr Joint Venture
with A Account
Cr Cash
7 Firm A received
discounts from joint
venture suppliers.
Dr Creditors
Cr Joint Venture
with B Account
No Entry
8 Expenses incurred
by Firm A on behalf
of joint venture.
Dr Joint Venture
with B Account
Cr Cash

No Entry
Transactions In Firm As book In Firm Bs
book
9 Firm A received or
was entitled
commissions of any
kind.
Dr Joint Venture with
B Account
Cr Commission
receivable /P &L
No Entry
10 Firm A made
cash sales
Dr Cash
Cr Joint Venture with
B Account
No Entry
11 Firm A made
credit sales.
Dr Debtors
Cr Joint Venture with
B Account
No Entry
12 Firm A made
credit sales and
settled by receiving
acceptance of a bill.
Dr Bill Receivable
Cr Joint Venture with
B Account

No Entry
Transactions In Firm As book In Firm Bs
book
13 Joint venture
customers returned
goods to Firm A
Dr Joint Venture with
B Account
Cr Debtors
No Entry
14 Discount allowed
to joint venture
customers by Firm
A
Dr Joint Venture with
B Account
Cr Debtors
No Entry
15 Bad debts
incurred from joint
ventures sales made
by Firm A
Dr Joint Venture with
B Account
Cr Debtors
No Entry
Transactions In Firm As
book
In Firm Bs book
16 Bad debts incurred
and borne by Firm B
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.)

No entry Dr Bad Debts
Cr Debtors
Transactions In Firm As
book
In Firm Bs book
17 Bad debts incurred
and Firm A, but borne
by Firm B ( Firm B
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.)

Dr Joint Venture
with B Account
Cr Debtors
Dr Bad Debts
Cr Joint venture
with A Account
Transactions In Firm As book In Firm Bs book
18 Firm A sent a cheque
to Firm B to finance the
joint venture.
Dr Joint Venture
with B Account
Cr Bank
Dr Bank
Cr Joint Venture
with A Account
19 Firm A purchased
goods on behalf of the
joint venture and sent
them to Firm B.
Dr Joint Venture
with B Account
Cr Cash
No Entry
20 Firm A sent some
goods or assets of the
joint venture to Firm B.
No entry No Entry
21 Assets taken for
personal use by Firm A.
Dr Drawings
Cr Joint Venture
with B Account

No Entry
Transactions In Firm As book In Firm Bs book
22 Unsold stock
taken over by Firm
A
Dr Stock
Cr Joint Venture with
B Account
No Entry
23Share of the profit
(Reverse the entries
if there is a loss).
Dr Joint Venture with
B Account
Cr P &L
Dr P &L
Cr Joint Venture
with A Account
24Settlement due to
Firm B
Dr Joint Venture with
B Account
Cr Bank
(Reverse the entries if
payment is due from
Firm B)

Dr Bank
Cr Joint Venture
with A Account
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
Less Returns outwards X X
Expenses X
Bad Debts X
Discount Allowed X
Profit - A X
- B X X
$
Sales X
Less Return inwards X
X
Discount received X
Asset taken over X
Stock taken over X
X X
Example 1
Wong
Joint Venture with Chan Account
1996 $ 1996 $
Debtors-return inwards 5,000
Creditors- purchases 40,000
Bills payable- purchases 15,000
Expenses 20,000
Commission receivable
-Ordinary 9,000
-Del credere 4,500
Debtors-discount allowed 2,000
Cash- purchases 20,000 Bills payable-paid by Cha 15,000
Debtors-sales 115,000
Chan
Joint Venture with Wong Account
1996 $ 1996 $
Debtors- Bad debts 500
Cash -paid Wongs bill 15,000
Cash - expenses 7,000
Commission receivable 2,000
Cash - purchases 30,000 Debtors-sales 30,000

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

Refer to example 1, there was an
intermediated settlement at that date.
The total closing stock was $6,500.
Example 3
Wong
Joint Venture with Chan Account
1996 $ 1996 $
Debtors-return inwards 5,000
Creditors- purchases 40,000
Bills payable- purchases 15,000
Expenses 20,000
Commission receivable
-Ordinary 9,000
-Del credere 4,500
Profit and Loss 8,400
Debtors-discount allowed 2,000
Bank-settlement due to
Chan 25,300
Cash- purchases 20,000 Bills payable-paid by Cha 15,000
Debtors-sales 115,000
130,000 130,000
Stock c/d (6500*4/5) 5,400
Chan
Joint Venture with Wong Account
1996 $ 1996 $
Debtors- Bad debts 500
Cash -paid Wongs bill 15,000
Cash - expenses 7,000
Commission receivable 2,000
Profit and Loss 2,100
Cash - purchases 30,000 Debtors-sales 30,000
56,600 56,600
Stock c/d (6500*1/5) 1,300
Banksettlement from
Wong 25,300
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
Stock
-normal business X


-joint venture X X
Joint Venture a/c
(if it is debit balance) X
Current Liabilities

Joint Venture a/c
(if it is credit 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.