Accounting for Joint Venture - CMA Inter Syllabus

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Accounting for Joint Venture

Joint venture is a short term business undertaking jointly by two or more persons who share the profits and losses in an agreed ratio. Joint Venture is a temporary form of business organization. There are certain business activities or projects that may involve higher risks; higher investments and even they demand multiskills. In such cases, an individual person may not be able to muster all resources. Hence two or more people having requisite skill sets come together to form a temporary partnership. This is called a Joint Venture. There is a Memorandum of Undertaking (MOU) signed for this purpose.

Concept

A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity.

Characteristics of Joint Venture

Following are the salient features of a joint venture form of business:

• There is an agreement between two or more persons.
• Joint venture is made for the specific execution of a business plan/project.
• It is a temporary partnership without the use of a firm name.
• Profit & Share are shared on the same terms and conditions agreed upon. However, in the absence of any agreement, profit & share will be divided equally.
• The terms of the joint ventures are executed on a written agreement signed by all parties involved. This document will state that the parties are willingly assisting each other and will contain other terms as such durations, model of association, liabilities etc.
• Joint ventures are of short duration. Such associations are temporary and comes to an end when the purpose of the agreement is served.

Parties in a Joint Venture

The parties who have agreed to undertake the joint venture are called Co-venturers or Joint venturers. It is exactly same as partnership, with the exception that it is one of the business that is to be terminated after the venture period is over, counting from the time from when it has started. Since it is to be terminated after the period of completion of the venture, the firm name is not generally used. It is a temporary partnership with or without firm name. If there is no agreement concerning the sharing of profits or losses between the co-venturers, it is shared equally by all the parties.

 Difference between Joint Venture and Partnership

There are following differences between partnership and joint venture −

• Partnership always carried on with firm’s name, but for the joint venture, no such firm’s name is required.
• The persons who run the business on partnership are called as partners and the persons who agreed to take the project as joint venture are called as co-venturers.
• Normally, a partnership is constituted for a long period (including various projects), whereas joint venture is formed to complete a specific job/project.
• Partnership is governed under the Partnership Act, 1932, whereas there is no enactment of such kind for the joint ventures. However, as a matter of fact in law, a joint venture is treated as a partnership.
• There is no limit specified for the numbers of co-venturers, but the number of partners is limited to 10 under banking business and 20 for any other trade or business.
• Liability of a partner is unlimited and may extent to his business and personal estate, whereas under joint venture, liabilities of co-venturers are limited to the particular assignment or project agreed upon.

Difference between Joint Venture and Consignment

Major differences between joint venture and consignment may be summarized as −

• Relationship − The co-venturers of a Joint venture are the owners of a Joint venture, whereas relationship of a consignor and consignee is of owner and agent.
• Sharing of Profits − There is no distribution of profit between a consignor and consignee, consignee only gets commission on sale made by him. On the other hand, the co-venturers of a joint venture share profits as per the agreed profit sharing ratio.
• Ownership of Goods − Ownership of the goods remains with the consignor. Consignor transfers only possession to the consignee, but every co-venturer of a joint venture is the co-owner of the goods/project.
• Contribution of Funds − Investment is done by the consignor only. On the other hand, funds are contributed by all co-ventures in a certain agreed proportion.
• Continuity of Business − In case of a joint venture, there is no continuity of the business once project is completed. On the other hand, if, everything goes smooth, consignment is a continuous process.

  Illustration 18

A and B enter into a joint venture sharing profits and losses in the ratio 3:2. A purchased goods costing ₹ 200000. B sold 95% of goods for ₹ 2,50,000. A is entitled to get 1 % commission on purchase and B is entitled to get 5 % commission on sales. A drew a bill on B for an amount equivalent to 80% of original cost of goods. A got it discounted at ₹ 1,50,000. Calculate B’s share of profit.

Solution:

Statement showing calculation of profit on joint venture

	(₹)	(₹)
Sales		2,50,000
Closing stock (5% of ₹2,00,000)		10,000
		2,60,000
Less: Purchase	2,00,000
A’s commission (₹2,00,000 × 1%)	2,000
B’s commission (₹2,50,000 × 5%)	12,500
Discount charges (₹2,00,000 × 80%) – ₹1,50,000	10,000	2,24,500
Net Profit		35,500

B’s share of Profit (₹ 35,500 × 2/5) = ₹ 14,200.

Accounting of Joint Venture

There are different methods of recording joint venture transactions. They can be broadly classified into two following methods:

I. When separate set of books are maintained
II.When separate set of books are not maintained.

Method I: When Separate Set Books are Maintained for the Joint Venture

As the business duration is short, the books of accounts are not very comprehensive. The basic purpose is to ascertain the profit or loss on account of the joint venture. Generally under this approach, the following accounts are maintained:

(a) Joint Venture account; 
(b) Joint Bank account; and 
(c) Co-venturers account.

(a) Joint Venture account: In this account, in the debit side all expenses (paid personally by the co venturers or out of join bank) irrespective of its nature (i.e capital or revenue) are recorded. In the credit side, all sales (to outsiders as well as to the co-venturers ) are recorded. It records all transactions related to the activities carried out. The net result of this account will be either profit or loss.

(b) Joint Bank account: To record cash/bank transactions a Joint Bank A/c is maintained. This is basically the cash book of the business. This could take a form of cash book with cash and bank column. It will record, the initial contributions made by each co-venturer, proceeds of sales, expenses and distribution of net balances among co-venturers on disSolution: of the ventureAll cash inflows are recorded in the debit side and the outflows are recorded in the credit side. Final settlement of the co venturers are lastly put into this account so that it tallies..

(c) Co-venturers account: Co-Venturer’s personal Accounts are maintained to record transaction related to coventurers. It is like the capital account in the partnership business. Balance in this account refer to the claim of a co venture to / from the business and is settled through the joint bank account.

The accounting entries are normally as follows:

 1. Contribution made by the co Ventures

Joint Bank A/c                  Dr.

To, Co-Venturer A/c

2. Expenses paid through Joint Bank Account

Joint Venture A/c                  Dr.

To, Joint Bank A/c

 3.  Expenses paid or goods supplied by the co-venturers from private account

Joint Venture A/c                  Dr.

To, Co-Venturer A/c

 4.  Sale proceeds or collections

Joint Bank A/c                  Dr.

To, Joint Venturer A/c

 5.  Collections received by co-venturer

Co-Venturer A/c                  Dr.

To, Joint Venturer A/c

 6.  Assets taken over by the co-venturer

Co-Venturer A/c                  Dr.

To, Joint Venturer A/c

 7.  Liabilities taken over by the coventurers  

Joint Venturer A/c                  Dr.

To, Co-Venturer A/c

 8.  Profit on joint venture 

Joint Venturer A/c                  Dr.

To, Co-Venturer A/c

 9.  Loss on joint venture

Co-Venturer A/c                  Dr.

To, Joint Venturer A/c

 10.  Final settlement made to co-venturer

Co-Venturer A/c                  Dr.

To, Joint Bank A/c

 Illustration 19

Sagar and Pakhi entered into Joint Venture and undertook building construction of P & Co. Ltd., Mumbai for ₹ 5,00,000. The following information are available for the undertaking business:

● Sagar supplied materials of ₹ 35,000 and Pakhi paid ₹ 20,000 his architect fees.

● Sagar contributed ₹ 1,25,000 and Pakhi contributed ₹ 75,000 and deposited the same amount in the Joint Bank Account

● They paid from Joint Bank Account for materials ₹ 2,80,000 and wages ₹ 1,20,000

● On completion of the venture they received contract price as per the terms

● Pakhi took over the unused materials for ₹ 15,000

Prepare Joint Venture A/c, Co-Venturers A/c and Joint Bank A/c.

Solution: 

Joint Venture Account 

Dr.				Cr.
Particulars		(₹)	Particulars	(₹)
To, Sagar A/c (Material)		35,000	By, Joint Bank A/c	5,00,000
To, Pakhi A/c:			By, Pakhi A/c
Architect fees		20,000	Unused materials	15,000
To, Joint Bank A/c
Materials	2,80,000
Wages	1,20,000	4,00,000
To, Profit on Joint Venture
Sagar	30,000
Pakhi	30,000	60,000
		5,15,000		5,15,000

 Co-Venturers Account 

Dr.					Cr.
Particulars	Sagar (₹)	Pakhi (₹)		Sagar (₹)	Pakhi (₹)
To, Joint Venture A/c		15,000	By, Joint Bank A/c	1,25,000	75,000
To, Joint Bank A/c	1,90,000	1,10,000	By, Joint Venture A/c	25,000	20,000
			By, Joint Venture A/c	30,000	30,000
	1,90,000	1,25,000		1,90,000	1,25,000

Joint Bank Account 

Dr.			Cr.
Particulars	(₹)	Particulars	(₹)
To, Sagar	1,25,000	By, Joint Venture A/c	4,00,000
To, Pakhi	75,000	By, Sagar	1,90,000
To, Joint Venture	5,00,000	By, Pakhi	1,10,000
	7,00,000		7,00,000

 Illustration 20

X and Y entered into a joint venture for purchase and sale of some household items. They agreed to share profits and losses in the ratio of their respective contributions. X contributed ₹ 10,000 in cash and Y ₹ 13,000. The whole amount was placed in a Joint Bank A/c. Goods were purchased by X for ₹ 10,000 and expenses paid by Y amounted to ₹ 2,000. They also purchased good for ₹ 15,000 through the Joint Bank A/c. The expenses on purchase and sale of the articles amounted to ₹ 6,000 (those made by Y). Goods costing ₹ 20000 were sold for ₹ 45,000 and the balance were lost by fire. Prepare Joint Venture A/c, Joint Bank A/c and Joint Venturers A/c closing the venture. 

Solution:

 Joint Venture Account 

Dr.				Cr.
Particulars	(₹)	(₹)	Particulars	(₹)
To, X (goods)		10,000	By, Joint Bank A/c (sales)	45,000
To, Y (expenses)		2,000
To, Joint Bank A/c (goods)		15,000
To, Joint Bank A/c (expenses)		4,000
To, Profit on Joint Venture transferred to:
X (4/7 share)	8,000
Y (3/7 share)	6,000	14,000
		45,000		45,000

Profit on joint venture is to be divided in proportion to the contributions of X and Y. Their contributions are:

	X’s contribution (₹ )	Y’s contribution (₹ )
Amount contributed in cash	10,000	13,000
Expenses paid by Y		2,000
Goods purchased by X	10,000
	20,000	15,000

Thus, profit sharing ratio between X and Y is 20,000 : 15,000 i.e. 4:3 or 4/7 and 3/7 respectively.

 Joint Bank Account 

Dr.			Cr.
Particulars	(₹)	Particulars	(₹)
To, X	10,000	By, Joint Venture A/c (expenses)	4,000
To, Y	13,000	By, Joint Venture A/c (goods)	15,000
To, Joint Venture A/c (sales)	45,000	By, X	28,000
		By, Y	21,000
	68,000		68,000

 X Account 

Dr.			Cr.
Particulars	(₹)	Particulars	(₹)
To, Joint Bank A/c	28,000	By, Joint Bank A/c	10,000
		By, Joint Venture A/c (goods)	10,000
		By, Joint Venture A/c (profit)	8,000
	28,000		28,000

Y Account

Dr.			Cr.
Particulars	(₹)	Particulars	(₹)
To, Joint Bank A/c	21,000	By, Joint Bank A/c	13,000
		By, Joint Venture A/c (expenses)	2,000
		By, Joint Venture A/c (profit)	6,000
	21,000		21,000

Method II: When Separate Set of Books are Not Maintained for the Joint Venture

The co-venturers may decide not to keep separate books of account for the venture if it is for a very short period of time. In this case, all co-venturers will have account for the transactions in their own books. Here no Joint Bank A/c is opened and the co-venturers do not contribute in cash. Goods are supplied by them from out of their stocks and expenses for the venture are also settled the same way.

Each co-venturer will prepare a Joint Venture A/c and the other Co-Venturer’s A/c in his books. Naturally, the profit or loss is separately calculated by each co-venturer. Each co-venturer will take into A/c all transactions i.e. done by himself and by his co-venturer as well. 

This method is generally applicable when the size of the business is small and co-venturers are operating from distant places.

(a) When each co-venturer keeps record of all transactions

Each co-venturer will prepare a Joint Venture A/c and the other Co-Venturer’s A/c in his books. Naturally, the profit or loss is separately calculated by each co-venturer. Each co-venturer will take into account all transactions i.e. done by himself and by his co-venturer as well.

The accounting entries (considering two co-venturers – A and B) are presented as under:

In books of co-venturer A	In books of co-venturer
When goods are supplied and expenses paid by A
Joint Venture A/c	Joint Venture A/c
To, Purchases A/c	To, A’s A/c
To, Cash / BankA/c
When goods are supplied by B and expenses paid by B
Joint Venture A/c	Joint Venture A/c
To, B’s A/c	To, Purchases A/c
	To, Cash / BankA/c
When advance is given by A to B or bill accepted by A
B’s A/c	Cash / Bank A/c
To, Cash / Bank A/c	B/R A/c
To, B/P A/c	To, A’s A/c
When sale proceeds are received by A
Cash / Bank A/c	A’s A/c
To, Joint Venture A/c	To, Joint Venture A/c
When sale proceeds are received by B
B’s A/c	Cash / Bank A/c
To, Joint Venture A/c	To, Joint Venture A/c
For unsold goods taken over by A
Goods A/c	A’s A/c
To, Joint Venture A/c	To, Joint Venture A/c
For unsold goods taken over by B
B’s A/c	Goods A/c
To, Joint Venture A/c	To, Joint Venture A/c
For profit on joint venture business
Joint Venture A/c	Joint Venture A/c
To, B’s A/c	To, A’s A/c
To, P & L A/c	To, P & L A/c
For loss on joint venture business
B’s A/c	A’s A/c
P & L A/c	P & L A/c
To, Joint Venture A/c	To, Joint Venture A/c

 After closure the business of joint venture, the co-venturer who has received surplus cash will remit it to the other co-venturer.

Illustration 21

Anil and Mukesh enter into a venture to take a job for ₹ 2,40,000. They provide the following information regarding the expenditure incurred by them:

	Anil (₹)	Mukesh (₹)
Materials	68,000	50,000
Cement	13,000	17,000
Wages	-	27,000
Architects fees	10,000	-
License fees	-	5,000
Plant	-	20,000

Plant was valued at ₹ 10,000 at the end of the contract and Mukesh agreed to take it at that value. Contract amount was received by Anil. You are required to prepare: 

(a) Joint Venture Account and Mukesh Account in the books of Anil; and

(b) Joint Venture Account and Anil Account in the books of Mukesh.

Solution:

In the books of Anil Joint Venture Account 

Particulars	(₹)	Particulars	(₹)
To, Bank A/c:		By, Bank A/c : Contract price	2,40,000
Materials	68,000	By, Mukesh A/c : Plant taken over	10,000
Cement	13,000
Architects Fees	10,000
To Mukesh A/c:
Materials	50,000
Cement	17,000
Wages	27,000
License Fees	5,000
Plant	20,000
To, Mukesh A/c: Share of Profit	20,000
To, P/L A/c : Share of Profit	20,000
	2,50,000		2,50,000

Mukesh’s Account (Co-venturer) 

Dr.			Cr.
Particulars	(₹)	Particulars	(₹)
To, Joint Venture A/c	10,000	By, Joint venture A/c	1,19,000
To, Balance c/d	1,29,000	By, Plant A/c	20,000
	1,39,000		1,39,000

(b) In the books of Mukesh

 Joint Venture Account 

Particulars	(₹)	Particulars	(₹)
To, Anil A/c:		By, Anil A/c : Contract Price	2,40,000
Materials	68,000	By, Plant A/c : Plant taken over	10,000
Cement	13,000
Architects Fees	10,000
To, Bank A/c:
Materials	50,000
Cement	17,000
Wages	27,000
License Fees	5,000
Plant	20,000
To, P/L A/c: Share of Profit	20,000
To, Anil A/c : Share of Profit	20,000
	2,50,000		2,50,000

 Anil Account (Co-venturer) 

Dr.			Cr.
Particulars	(₹)	Particulars	(₹)
To, Joint Venture A/c	2,40,000	By, Joint Venture A/c	91,000
		By, Joint Venture A/c	20,000
		By, Balance C/d	1,29,000
	2,40,000		2,40,000

 Illustration 22

Sahani and Sahu entered into a joint venture to sale 800 bags of food grains. The business risks are to be shared in the ratio of 3:2 between them. Sahani supplied 400 bags at Rs. 800 per bag and paid freight Rs. 8,000 and insurance Rs. 2,000. Sahu sent 400 bags at Rs. 1,000 per bag. He paid Rs. 2,500 as freight, Insurance Rs. 8,000 and sundry expenses as Rs. 500. Sahani paid Rs. 50,000 as advance to Sahu.

They appointed Sandeep as agent for sale of grains. Sandeep sold all bags at Rs. 1,200 per bag. He deducted Rs. 21,000 as his expenses and commission of 5% on sales. He remitted Rs. 6,00,000 by cheque to Sahani and the balance to Sahu by way of a bill of exchange. The co-venturers settled their accounts. Prepare Joint Venture A/c Sahu’s A/c and Sandeep’s A/c in the books of Mr. Sahani.

Solution: 

Books of Sahani
Joint Venture Account

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To, Food grains A/c (400*800)	3,20,000	By, Sandeep A/c - sales (800*1200)	9,60,000
To, Bank A/c - freight & insurance	10,000
To, Sahu A/c -food grains(400*1000)	4,00,000
To, Sahu A/c - expenses	11,000
To, Sandeep A/c - expenses	21,000
To, Sandeep A/c - commission 5%	48,000
To, Profit & Loss A/c 3/5th share	90,000
To, Sahu A/c 2/5th share	60,000
	9,60,000		9,60,000

 

Sahu’s Account (Co-venturer)

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To, Bank A/c - advance	50,000	By, Joint Venture A/c - grains	4,00,000
To, Sandeep A/c - bill	2,91,000	By, Joint Venture A/c - expenses	11,000
To, Bank A/c - final balance	1,30,000	By, Joint Venture A/c - profit share	4,71,000

 

Sandeep’s Account (Agent)

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To, Joint Venture A/c - sales	9,60,000	By, Joint Venture A/c - expenses	21,000
		By, Joint Venture A/c - commission	48,000
		By, Bank A/c - cheque received	6,00,000
		By, Sahu A/c - Bill	2,91,000
	9,60,000		9,60,000

(b) When each co-venturer keeps record of its own transactions (Memorandum method)

As a variation from this system, the co-venturers may decide to maintain a separate ‘Memorandum Joint Venture A/c’ in joint books. In this transactions made by each co-venturer is shown against their name. This account will reflect the profit or loss of the joint venture. The co-venturers will keep an account called “Joint venture with coventurer A/c” wherein all transactions done by him only are recorded.

Each co-venturer sends a periodic statement of transactions effected by him for the joint venture to the other coventurer. On the receipt of the above statement, each co-venturer prepares Memorandum Joint Venture Account for determining the profit/ loss from the joint venture. This account is not a double entry account by nature.

The journal entries which are required to be passed are as follows:

Amount received from co-venturer in cash / cheque or B/R

Cash/ Bank/ B/R A/c

To, Joint Venture with Co-Venture's A/c

Discounting of Bills Receivable

Bank A/c

Bank A/c

To, B/R A/c

Purchase of goods

Joint Venture with Co-venturer …. A/c

To, Cash/ Bank A/c

To, JV Creditors A/c

Making payment to Creditors (including discount received)

JV Creditors A/c

To, Cash/ Bank/ B/P A/c

To, Joint Venture with Co-venturer…. A/c

Goods supplied by co-venturer from own stock

Joint Venture with Co-venturer…. A/c

To, Purchases A/c/ Goods sent to JV A/c

Payment of expenses

Joint Venture with Co-venturer…. A/c

To, Cash/ Bank A/c

Sale of goods

Cash/ Bank/ JV Debtors A/c

To, Joint Venture with Co-venturer…. A/c

Collection from customer (including bad debts discount allowed)

Cash/ Bank A/c

Joint Venture with Co-venturer…. A/c

To, JV Debtors A/c

Taking away of unsold goods

Goods sent to JV A/c

To, Joint Venture with Co-venturer…. A/c

Co-venturer entitled to commission/ salary etc.

Joint Venture with Co-venturer…. A/c

To, Commission/ Salary A/c

Share of profit on joint venture

Joint Venture with Co-venturer…. A/c

To, Profit & Loss A/c

Share of loss on joint venture

Profit & Loss A/c

To, Joint Venture with Co-venturer…. A/c

Settlement of balance of JV with …. A/c

In case of debit balance

Cash/ Bank A/c

To, Joint Venture with Co-venturer…. A/c

In case of credit balance

Joint Venture with Co-venturer… A/c

To, Cash/ Bank A/c

Points to note: The following transactions are not recorded in the books of either co-venturer:

● Transactions effected by other co-venturer; and 
● Transactions not involving cash receipt or cash payment.

Illustration 23

Hari and Om agreed for purchasing and selling furniture in a joint venture, their profit sharing ratio being 3:2 respectively. Hari purchased 10 sofas at ₹ 10,000 per sofa. He sent those sofas to Om for sale after spending ₹ 1,000 per sofa on insurance and transportation. He drew a bill of ₹ 50,000 on Om and this bill was discounted at a discount of ₹ 5,000 after acceptance. Om incurred further expenses of ₹ 2,000 on these sofas before sale. He sold all the sofas @ ₹ 15,000 per sofa, giving 5% commission to the dealer. Prepare Joint Venture with Om Account in the books of Hari. Also show the Memorandum Joint Venture Account.

Solution:

In the Books of Hari

Memorandum Joint Venture Account

Particulars		(₹)	Particulars	(₹)
To, Bank A/c [Purchase] (10,000 × 10)		1,00,000	By, Om A/c [Sales]  (₹15,000 × 10)	1,50,000
To, Bank A/c [Expense] (1,000 × 10)		10,000
To, Discount A/c (Bill discounted)		5,000
To, Om A/c [Expenses]		2,000
To, Om A/c [Commission] (1,50,000 ×  5%)		7,500
To, P/L A/c:
Hari	15,300
Om	10,200	25,500
		1,50,000		1,50,0000

 Joint Venture with Om Account 

Dr.			Cr.
Particulars	(₹)	Particulars	(₹)
To, Bank A/c [Purchase]	1,00,000	By, Bills Receivable A/c	50,000
To, Bank A/c [Expense]	10,000	By, Balance c/d	80,300
To, Discount on Bill A/c	5,000
To, P/L A/c [Share of profit]	15,300
	1,30,300		1,30,300

 Illustration 24

Jiban and Mitrik decided to work in joint venture with the following scheme, agreeing to share profits in the ratio of 2/3 and 1/3. They guaranteed the subscription at par of 50 lakhs shares of ₹ 10 each in Rainbow Ltd. and to pay all expenses up to allotment in consideration of Rainbow Ltd. issuing to them 3 lakhs other shares of ₹ 10 each fully paid together with a commission @ 5% in cash which will be taken by Jiban and Mitrik in 3:2.

Co-ventures introduced cash as follows: 

		(₹)
Jiban	Stamp charges etc.	1,65,000
	Advertising charges	1,35,000
	Car expenses	1,54,000
	Printing Charges	1,88,000
Mitrik	Rent	1,30,000
	Solicitors’ charges	80,000

Application fell short of the 50 lakhs shares by 1,20,000 shares and Mitrik introduced ₹ 12 lakhs for the purchase of those shares. 

The guarantee having been fulfilled, Rainbow Ltd. handed over to the venturers 3 lakhs shares and also paid Commission in cash. All their holdings were subsequently sold by the venturer Mitrik receiving ₹ 12,50,000 and Jiban ₹ 25 lakhs.

You are required to prepare:

(a) Memorandum Joint Venture A/c

(b) Joint Venture A/c with Mitrik in the books of Jiban

Solution:

Memorandum Joint Venture Account

Particulars	(₹)	Particulars	(₹)
To, Mitrik:		By, Jiban
Cost of shares	12,00,000	Commission (3/5)	15,00,000
To, Jiban:		By, Mitrik
Stamp charges	1,65,000	Commission (2/5)	10,00,000
Advertising charges	1,35,000
Printing charges	1,88,000
Car expenses	1,54,000
To, Mitrik:		By, Jiban
Rent	1,30,000	Sale proceeds of shares	25,00,000
Solicitor’s charges	80,000
To, Profit on venture :		By, Mitrik
Jiban (2/3)	27,98,667	Sale proceeds of shares	12,50,000
Mitrik (1/3)	13,99,333
	62,50,000		62,50,000

In the books of Jiban

Joint Venture with Mitrik Account 

Dr.			Cr.
Particulars	(₹)	Particulars	(₹)
To, Bank:(Stamp charges, advertising charges,  car expenses and printing charges)	6,42,000	By Bank (commission)	15,00,000
To, Share of profit	27,98,667	By, Bank (Sale proceeds of shares)	25,00,000
To, Bank (Remittance)	5,59,333
	40,00,000		40,00,000

Conversion of Consignment into Joint Venture

A variation could be that an ongoing consignment arrangement may get converted into a joint venture arrangement. In such a case, normal accounting for consignment business is done till the conversion. Upon the conversion, the balance stock on consignment is transferred to the Joint Venture A/c and from that day onwards, accounting is done on the basis of principles followed for joint venture.

Illustration 25

Daga of Kolkata sent to Lodha of Kanpur goods costing Rs. 40,000 on consignment at a commission of 5% on gross sales. The packaging and forwarding charges incurred by consignor amounted to Rs. 4,000. The consignee paid freight and carriage of Rs. 1,000 at Kanpur. Three-fourth of the goods were sold for Rs. 48,000. Then the consignee remitted the amount due from him to consignor along with the account sale, but he desired to return the goods still lying unsold with him as he was not agreeable to continue the arrangement of consignment. He was then persuaded to continue on joint venture basis sharing profit or loss as Daga 3/5th and Lodha 2/5th.

Daga then supplied another lot of goods of Rs. 20,000 and Lodha sold out all the goods in his hand for Rs. 50,000 (gross). Daga paid expenses Rs. 2,000 and Lodha Rs. 1,700 for the second lot of goods.

Show necessary Ledger A/c in the books of both parties. No final settlement of balance due is yet made.

Solution:

Books of Sahani
 Joint Venture Account

Dr.			Dr.
Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To, Goods Sent on Consignment A/c	40,000	By, Lodha’s A/c (sales)	48,000
To, Bank A/c (packing & dispatching)	4,000	By, Joint Venture with Lodha A/c	11,250
To, Lodha’s A/c :		(stock transferred on conversion to JV)
Freight & Carriage	1,000
Commission	2,400
To, P & L A/c	11,850
	59,250		59,250

 

Lodha’s Account

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Consignment A/c - sales	48,000	By, Consignment A/c- expenses	1,000
		By, Consignment A/c - commission	2,400
		By, Cash A/c	44,600
	48,000		48,000

 

Joint Venture with Lodha Account

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To, Consignment to Lodha A/c	11,250	By, Balance c/d	42,280
To, Goods A/c	20,000
To, Bank A/c - expenses	2,000
To, P & L A/c (profit)	9,030
	42,280		42,280

Books of Lodha
Dr. Daga’s Account (as consignor)

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To, Cash A/c- expenses	1,000	By, Bank A/c – sales	48,000
To, Commission A/c	2,400
To, Bank A/c - remittance	44,600
	44,800		48,000

 

Joint Venture with Daga Account

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To, Cash A/c - expenses	1,700	By, Bank A/c – sales	50,000
To, P & L A/c (profit)	6,020
To, Balance c/d	42,280
	50,000		50,000

 

Memorandum Joint Venture Account

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To, Daga A/c - goods	11,250	By, Lodha A/c – sales	50,000
To, Daga A/c- g	20,000
To, Daga A/c- expenses	2,000
To, Lodha A/c- expenses	1,700
To, Net Profit :
Daga 3/5th Share	9,030
Lodha 2/5th share	6,020
	50,000		50,000

Joint Ventures Running for More than One Accounting Period

If a joint venture runs for more than one accounting period, it poses a special problem of calculation of the closing stock. The stock should be valued on the basis of basic cost plus proportionate non-recurring expenses and it should be shown in the memorandum joint venture account on the credit side at the end of the year and on the debit side of the memorandum joint venture account of the next year. The other accounts should be made in the usual manner. However, if the co-ventures are interested in an interim settlement at the end of the first year, they should bring in their proportionate share in the value of the closing stock in their respective ‘Joint Venture with Co- Venturer Account’ and finally settle their account. The share of stock should be carried forward and shown on the debit side of the ‘Joint Venture with Co-venturer Account.

Solved Case

Hyder is a producer of sandalwood miniature handicraft items having his business at the city of Mysore, Karnataka. He has gathered that even though Mysore is a popular tourist destination in South India, Agra happens to be the most popular destination, especially for foreign tourists in India. He was interested in selling his handcrafted items in Agra, but lacked the resources to open a full-fledged store in Agra. So, the only viable option available to him was to appoint an agent who would sell the handicraft items on his behalf for a commission. With this objective in mind, he searched for a reliable agent in Agra and got the reference of a popular business agent in Agra named Jalal from Yasin, one of his long-term business partner. After a few formal meeting and negotiations, Jalal was officially appointed as Hyder’s agent who would receive goods from Hyder on consignment basis and sell them to customers in Agra. 

On April 1, 2021, Hyder sent goods to Jalal of Agra. However, Hyder lost all the documents that recorded the details of the goods sent on consignment. The only information available from his office is that the forwarding expenses incurred by of him for sending the goods to Agra was ₹ 12,000. Hyder gathered the following information from Jalal in relation to this consignment:

~ He incurred expenses to the tune of ₹ 25,000 out of which a sum of ₹ 9,000 is recurring in nature.

~ The Jalal had remitted the balance due from him through Bank Draft after deducting the expenses, 5% commission on gross sales, bad debts ₹ 4,250 and a Bills payable accepted by him for ₹ 50,000.

~ The value of unsold stock at original cost lying with Jalal as on March 31, 2022 amounted to ₹ 2,50,000.

~ Jalal sent an Account Sales reflecting the total sales effected by him during 2021-22 of ₹ 22,50,000. This included ₹ 15,62,500 for sales made at invoice price which is cost plus 25% and the balance at 10% above the invoice price. 

i. What is the amount of goods sent on consignment by Hyder to Jalal?

ii. Ascertain the amount of profit or loss made by Hyder out of this consignment to Agra. Show by drafting the relevant ledger account.

iii. Determine the amount of final remittance made by Jalal to Hyder by drafting Jalal Account in the books of Hyder.

Solution: 

i.  Calculation of Goods Sent on Consignment by Hyder to Jalal

Particulars	(₹)
Total sales	22,50,000
Less: Sales made at invoice price	15,62,500
Sales made at invoice price plus 10%	6,87,500
Total sales at invoice price [₹ 15,62,500 + (₹ 6,87,500 × 100/110)]	21,87,500
Less: Loading on above [₹ 21,87,500 × 25/125]	4,37,500
Cost of Goods sold	17,50,000
Add: Unsold stock	2,50,000
Cost of goods sent on consignment	20,00,000
Add: Loading @ 25%	5,00,000
Goods sent on consignment [at IP]	25,00,000

ii. Profit on consignment is ₹3,49,750.

Consignment to Agra Account

Particulars	(₹)	Particulars	(₹)
To, Goods sent on Consignment A/c	25,00,000	By, Consignment Debtors A/c [Sale]	22,50,000
		By, Goods sent on Consignment A/c  [Load on goods sent]	5,00,000
To, Bank A/c [Expenses incurred]		By, Consignment Stock A/c [WN]	3,16,000
- Forwarding Expenses	12,000
To, Consignee A/c [Expenses paid by consignee]
- Non-recurring Expense  [25,000 – 9,000]                                                                    16,000
- Recurring Expenses                                                                                                        9,000	25,000
To, Consignee A/c   [Commission due: ₹ 22,50,000 × 5%]	1,12,500
To, Consignment Debtors A/c [Bad debt]	4,250
To, Stock Reserve A/c  [Load on unsold stock – WN]	62,500
To, P/L A/c [Profit on consignment transferred] (Bal. fig.)	3,49,750
	30,66,000		30,66,000

iii. Amount of final remittance made by Jalal to Hyder is - ₹20,58,250.

Jalal Account

Particulars	(₹)	Particulars	(₹)
To, Consignment Debtors A/c  [Collection from debtors:  22,50,000 – 4,250]	22,45,750	By, Bills Receivable A/c	50,000
		By, Consignment A/c [Expenses incurred]	25,000
		By Consignment A/c [Commission due]	1,12,500
		By Bank A/c [Final remittance – Bal. Fig.]	20,58,250
.	22,45,750		22,45,750

Working Note:    

Statement showing valuation of Unsold Stock:

Particulars	(₹)
Original cost of unsold stock (given)	2,50,000
Add: Loading [₹ 50,000 × 25%]	62,500
	3,12,500
Add: Proportionate expenses of consignor [₹ 12,000 × 3,12,500/25,00,000]	1,500
Proportionate non-recurring expenses paid by consignee  [₹ 16,000 × 3,12,500 / 25,00,000]	2000
Value of unsold stock	3,16,000

Exercise

A. Theoretical Questions:

Multiple Choice Questions

1. Memorandum Joint Venture Account is prepared _______.
   (a) for determining the amount due to co-venturer
   (b) for determining the amount due from co-venturer
   (c) for ascertaining the profit/ loss on venture 
   (d) None of the above 
2. The share of profit of a co-venturer maintaining only her/ his own transactions is _______.
   (a) Debited to Joint Venture Account 
   (b) Debited to other co-venturer’s personal account 
   (c) Debited to Profit & Loss Account 
   (d) None of the above
3. If any stock is taken by a co-venturer, it will be treated as _______.
   (a) an income of the joint venture.
   (b) an expense of the joint venture.
   (c) to be ignored from joint venture.
   (d) it will be treated in the personal books of the co-venturer.
4. Memorandum Joint Venture Account is prepared when
   (a)  the separate set of books is maintained for Joint Venture. 
   (b)  the each Co-venturer keeps records of all transactions.
   (c)  the each Co-venturer keeps records of their own transactions only.
   (d)  All of the above cases

Solution:

1

c

2

b

3

a

4

c

B. Numerical Questions

Multiple Choice Questions

1. P and Q enter into a joint venture sharing profit and losses in the ratio of 3:2. P purchased goods costing 
   ₹ 2,00,000. Q sold 95% goods for ₹ 2,50,000. P is entitled to get 1% commission on purchase and Q is 
   entitled to get 5% commission on sales. P drew a bill on Q for an amount equivalent to 80% of original 
   cost of goods. P got it discounted at ₹ 1,50,000. What is P’s share of profit? 
   (a)  ₹ 15,300
   (b)  ₹ 21,300 
   (c)  ₹ 18,900 
   (d)  None of the above

Solution:

1

b

CMA book unsolved questions solution

Azad and Arjun entered into a Joint Venture and opened a Fast Food Shop in Durga Puja festival at Jadavpur. Their profit sharing ratio is 1:1. Azad delivers stock of 50,000. He also paid carriage charges amounting to 2,500. Arjun incurred expenses on carriage and electricity charges for 6,500 and receives cash for sales 30,000. Arjun taken over stock at an agreed value of 10,000 for his personal use. At the end of the venture, Azad has taken over the remaining stock which was valued at 11,000.

You are required to prepare necessary ledger accounts in the books of Azad and Arjun.

Solution:

In the Books of Azad
Joint Venture Account

Dr.			Cr.
Particulars	Amount	Particulars	Amount
To Purchase A/C	50,000	By Arjun A/C	30,000
To Bank A/C Carriage	2,500	Sale proceeds goods taken over	10,000
To Arjun A/C		By Purchases A/C goods supplied	11,000
Carriage and electricity	6,500	By Arjun A/C loss on venture at 1:1	4,000
		By Profit and Loss A/C loss on venture at 1:1	4,000
	59,000		59,000

Arjun Account

Dr.			Cr.
Particulars	Amount	Particulars	Amount
To Joint Venture A/C		By Joint Venture A/C
Sale proceeds Goods taken over	30,000	Carriage and electricity	6,500
To Joint Venture A/C	10,000	By Bank A/C
loss on venture at 1:1	4,000	Final Settlement	37,500
	44,000		44,000

In the Books of Arjun
Joint Venture Account

Dr.			Cr.
Particulars	Amount	Particulars	Amount
To Azad A/C		By Bank A/C
goods supplied	50,000	Sales proceeds	30,000
To Azad A/C Carriage	2,500	By Drawing A/C
To Bank A/C		Goods taken over	10,000
Carriage and electricity	6,500	By Azad A/C
		Stock taken over by Azad	11,000
		By Azad A/C
		- loss on venture at 1:1	4,000
		By Profit and Loss A/C
		- loss on venture at 1:1	4,000
	59,000		59,000

 

Azad Account

Dr.			Cr.
Particulars	Amount	Particulars	Amount
To Joint Venture A/C		By Joint Venture A/C	50,000
Stock taken over	11,000	Goods supplied Carriage	2,500
To Joint Venture A/C
loss on venture	4,000
To Bank A/C
Final Settlement	37,500
	52,500		52,500