1. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.1 Chapter 40 Joint venture accounts

2. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.2 Learning objectives After you have studied this chapter, you should be able to:  Explain what is meant by the term ‘joint venture’  Explain why separate joint venture accounts are kept by each of the parties to a joint venture  Make the entries in the accounts for the joint venture

3. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.3 Learning objectives (Continued)  Calculate and enter the profits of the joint venture into the accounts of the parties to the joint venture  Identify the amount owing to or owed by each of the parties to the other parties in the joint venture and make the appropriate entries in the joint venture accounts when payment is made and received  Name two accounting standards relating to joint ventures

4. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.4 The nature of joint ventures  Sometimes two businesses will join together for a single venture.  Such projects are called joint ventures.  The profits or losses are shared in agreed ratios.  Each company involved keeps their own records for the venture.  One set of financial statements is produced for the venture.

5. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.5 Activity

6. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.6 Activity (Continued) Stage 1

7. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.7 Activity (Continued) The books will appear as:

8. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.8 Activity (Continued) Stage 2  White and Green will each send a copy of their joint venture accounts to the other person.  They will then each draw up a memorandum joint venture account that includes all the details from each joint venture account.  This will ascertain the share of net profit or loss of each party of the joint venture and help calculate the amounts payable/receivable to close the venture.

9. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.9 Activity (Continued)

10. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.10 Activity (Continued) Stage 3 The net profit shares for White and Green need to be brought into their own books.

11. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.11 Activity (Continued)

12. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.12 The profit shares are now copied into the joint venture accounts held by White and Green. These accounts are then balanced off. Activity (Continued)

13. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.13 Activity (Continued)

14. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.14  Finally the parties in the joint venture need to settle their debts to each other.  They can establish what is due by looking at the joint venture account.  If the balance brought down is a credit balance, money is owed to another party.  The payment will be made and the account closed off. Activity (Continued)

15. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.15 Activity (Continued)

16. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.16 IAS 31: Financial reporting of interests in joint ventures  IAS 31 was issued in 1991 and explains the acceptable treatment of short-term joint ventures.  In 1997, the ASB issued FRS 9, which confirmed the correct treatment of joint ventures.

17. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.17 Learning outcomes You should have now learnt: 1. That when two or more businesses join together for a particular business venture, and do not form a permanent business entity, they have entered into a joint venture 2. That larger and long-term joint ventures operate a separate bank account and books dedicated to the project

18. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.18 Learning outcomes (Continued) 3. That the participants in smaller joint ventures rely on their own bank accounts and books to run and record their part of the project using a memorandum joint venture account to pass the details of their part of the project to the other participant(s) 4. Why separate joint venture accounts are kept by each party to smaller and short- term joint ventures

19. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 40.19 Learning outcomes (Continued) 5. How to make the appropriate entries in the books of the parties to the joint venture, calculate the profit, share that profit among the parties to the joint ventures and close off the joint venture accounts at the end of the joint venture 6. That IAS 31 regulates accounting for joint ventures