In brief, a joint venture company is a partnership limited to a particular venture, does not make use of a firm’s name, all the parties agreeing to contributing capital towards the venture and to share the profit or losses.
Joint ventures accounts can be handled in two ways namely:
- To treat the joint venture as a separate set of books where the transactions are recorded like as if it is a partnership OR
- No separate set of books is opened to record the transaction. Each party to record his own transactions in his own books
Accounting Entries/Treatment Using Method 2 (No Separate Set of Books opened)
(a) Each party to record his own transactions relating to the joint venture in his own books by opening an account called JOINT VENTURE WITH ……. ACCOUNT.
(b) The various transactions from all parties in the Joint Venture are then combined into a MEMORANDUM JOINT VENTURE ACCOUNT.
© Once the profit or loss is known vide the Memorandum Joint Venture Account, each party to debit or credit the Joint Venture Account in his own books with his share of the profit or loss.
(c) When the JOINT VENTURE WITH …. ACCOUNT in each party’s book is balanced, any debit or credit balance will be closed by one party remitting the amount owing by him to the other party.
A Simplified Joint Venture Accounts Example(without closing stock & bad debts )
|Question:On 1 July, Ryan and Simon entered into a joint venture to buy and sell antiques and they agreed to share profit and loss equally.
On 19 July, Ryan bought two antiques for $10,000. Ryan incurred expenses of $1,000. On 24July, he sold the antiques for $30,000
On 25 July, Simon bought two antiques for $20,000 and on July 29 managed to sell them off for $60,000 and incurred expenses of $2,000
The books are agreed to be closed at end of the month and a financial settlement is supposed to be effected amongst Simon and Ryan
(1) Prepare the Joint Venture as it would appear in the books of Ryan and Simon
(2) Prepare the Memorandum Joint Venture Account for the aforesaid joint venture.
In Ryan’s Book
JOINT VENTURE WITH SIMON ACCOUNT
In Simon’s Book
JOINT VENTURE WITH RYAN ACCOUNT
MEMORANDUM JOINT VENTURE ACCOUNT