Chapter – 2 Joint venture Accounting Chapter outcomes: Meaning and nature of joint venture; Distinction between partnership and joint venture; Distinction between joint-venture and consignment; Methods of recording joint venture transaction; Recording in a separate set of books; Practical exercises;

Meaning of joint venture Joint venture may be described as a temporary partnership between two or more persons without the use of the firm name, for a limited purpose. In other words, under joint venture, two or more persons agree to undertake a particular venture and share the profits or loss at an agree ratio. Examples: joint consignment of goods, joint construction of a building, joint underwriting of a particular issues of shares or debentures. The persons who agree to undertake a joint venture are known as ‘joint venturers” or ‘co-venturers’. Such limited partnership automatically expires on the completion of the venture for which it was formed.

Distinction between partnership and joint venture Basis oc distinction Partnership Joint venture 1. Scope It is not limited to a specific venture It is limited to a specific venture 2. Persons involved The persons carrying on business are individually called partners The persons carrying on the business are called “co-venturers” 3. Ascertaining profit or loss The profit or loss is ascertained on annual basis The profit or loss is ascertained at the end of specific venture or an interim basis annually if the venture continues for a longer period 4. Doctrine of implied authority The doctrine of implied authority is applicable to partners The doctrine of implied authority is not applicable 5. Freedom to run competition The partners do not have such freedom The co-venturers have such a freedom.

Distinction between joint venture and consignment Basis of distinction Joint-venture consignment 1. Nature of relationship The relation between co-venturers is that of co-owners The relation between the consignor and the consignee is that of principal and agent 2. Ownership and Risk of goods Both these remain with co-venturers Both these remain with the consignor 3. Account sales No account sales is sent by one co-venturer to another An account sale is prepared and submitted by the consignee to his consignor 4. Profit and loss on transactions Profit and losses are shared by the co-venturers in an agreed ratio Profit and losses are shared only by the consignor and not by the consignee 5. Subject matter of dealing Any movable or immovable property may be its subject matter Only movable property may be its subject matter.

Methods of recording joint venture transactions There are three methods of recording the joint venture transactions as under: Recording all joint venture transactions in a separate set of books; Recording of all the joint venture transactions only by one of the co-venturers in his own books; Recording of the partial joint venture transactions concerning him only by each of the co-venturers in his own books of account

Pro forma Journal entries under separate set of books The following journal entries are passed: 1. When capital is brought in by the co-venturers: Joint Bank Account Dr. XXXX Co-Venturers personal account Cr. XXXX (Being the capital brought in by co-venturers) 2. When goods are purchased: Joint-venture account Dr. XXXX Bank/Cash/suppliers account Cr. XXXX (Being the goods purchased for joint-venture) 3.When any goods are supplied by any of the co-venturers: Joint-venture Account Dr. XXXX Co-venturer’s personal Account XXXX (Being the goods supplied by the co-venturer)

4. When the expenses are incurred: Joint-venture account Dr 4. When the expenses are incurred: Joint-venture account Dr. XXXX Joint-Bank Account Cr. XXXX Co-venturer’s account (Being the expenses incurred for joint-venture) 5. When goods are sold: Joint Bank account Dr. XXXX Customer’s account Dr. XXXX Co-venturer’s account Dr. XXXX Joint-venturer account Cr. XXXX (Being the goods sold) 6. When the closing stock is taken by any co-venturer: Co-venturer’s account Dr. XXXX Joint-venture account Cr. XXXX (Being the stock taken by the co-venturer) 7. When there is profit or loss in joint venture: If profit: Joint-ventur Dr. XXXX Co-venturer’s account Cr. XXXX

If loss: Co-venturer’s account Dr. XXXX Joint venture account Cr If loss: Co-venturer’s account Dr. XXXX Joint venture account Cr. XXXX (Being the loss transferred to covernturers’ account) 8. Final settlement among the joint-venture: If debit balance: Joint-bank account Dr. XXXX Co-venturers’ account Cr. XXXX If credit balance: Co-venturers’account Dr. XXXX Joint-venture account Cr. XXXX (Being the final settlement among the co-venturers)