S5 Accounts/Joint Venture/LWL

Joint Venture Accounts ( A. Nature of Joint Ventures

A Joint Venture is a short-term partnership. Two or more partners arrange to carry out a business to earn profit. When the business is completed, the joint venture will terminate. B. Accounting Treatment For F5 examinations, only small joint ventures are examined. In smaller joint ventures, each of the Buenos will record only those transactions carried out by them. Procedures in keeping joint venture accounts: Example : A and B are in joint venture selling flowers in Lunar New Year. Step 1 : Record individual expenses and revenue in the partners own Joint Venture Account.

As Record Expenses paid by A Joint Venture with B Revenue earned by A

Bs Record Expenses paid by B Joint Venture with A Revenue earned by B

A Joint Venture Account has two natures, it is a Profit and Loss Account relating to the Joint Venture; it also acts as a Debtor/Creditor Account. Therefore, for a Debit entry, it is an expenses as well as a debtor. For a Credit entry, it is a revenue as well as a creditor.

Step 2 : Prepare a Memorandum (Total) Joint Venture Account to calculate Profit/Loss for the whole Joint Venture. A and B Memorandum Joint Venture Account Total Expenses of the J.V. Total Revenue of the J.V. (Add the expenses paid by A & B) (Add the revenue received by A & B)

Net Profit on Joint Venture: A (1/2) B (1/2)

Loss on Joint Venture: A (1/2) B (1/2)

S5 Accounts/Joint Venture/LWL

Step 3 : Record the Net Profit/Loss back in the individual Joint Venture Account, i.e. As Joint Venture Account and Bs Joint Venture Account. If it is Profit, Debit individual Joint Venture Account; if it is Loss, Credit the individual Joint Venture Account.

As Record Joint Venture with B Expenses paid by A Revenue earned by A

(Net Profit earned by A)

(Net Loss suffered by A)

Bs Record Joint Venture with A Expenses paid by B Revenue earned by B

(Net Profit earned by B)

(Net Loss suffered by B)

Step 4 : In the individual Joint Venture Account, carry down the balances. Balances b/d show indebtedness of one of the parties to the other parties.

As Record Joint Venture with B Expenses paid by A Revenue earned by A

(Net Profit earned by A) Balance c/d =====

(Net Loss suffered by A) Cash in settlement from B =====

Bs Record Joint Venture with A Expenses paid by B Revenue earned by B

(Net Profit earned by B) Cash in settlement to A =====

(Net Loss suffered by B) Balance c/d =====

S5 Accounts/Joint Venture/LWL

Points to Note : 1. Goods Taken Over by Partner: Debit _____________________________________ Credit ___________________________________ 2. Insurance Compensation paid for loss of goods: Debit _________________________________ Credit ______________________________ 3. Goods Damaged, Lost, Destroyed by Fire

(a) If the stock is uninsured, NO ENTRY is needed to be made in the Joint Venture Account. (b) If the stock is insured, the treatment is the same as in (2) above. 4. Unsold Stock upon completion of the Joint Venture. Example : A and B are in joint venture with equal sharing. Upon completion of the Joint Venture, stock of $5,000 with carriage $1,000 paid were unsold. The partners agreed to take back the stock as their own.

Solution: As Record Expenses paid by A Joint Venture with B Revenue earned by A

Bs Record Expenses paid by B Joint Venture with A Revenue earned by B

A and B Memorandum Joint Venture Account Total Expenses of the J.V. Total Revenue of the J.V.