Joint Venture Accounts- Accounting Treatment

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.

At end of accounting period say monthly, each party to submit his records to the other parties to derive the overall Joint Venture’s profit or loss result

(b) The various transactions from all parties in the Joint Venture are then combined into a MEMORANDUM JOINT VENTURE ACCOUNT.

Note that is memorandum joint venture account does form any part of the double entry.

(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

Required:

(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.

Proposed Solution

In Ryan’s Book

JOINT VENTURE WITH SIMON ACCOUNT

		$			$
July 19	Cash Purchases	10,000	July 24	Sales	30,000
	Cash –Expenses	1,000
July 31	Share of profit	28,500	July 31	Cash from Simon	9,500
		39,500			39,500

In Simon’s Book

JOINT VENTURE WITH RYAN ACCOUNT

		$			$
July 25	Cash Purchases	20,000	July 29	Sales	60,000
July 29	Cash-Expenses	2,000
July 31	Share of profit	28,500
	Cash to Ryan	9,500
		60,000			60,000

MEMORANDUM JOINT VENTURE ACCOUNT

		$			$
July 31	Purchases((10+20)	30,000	July 31	Sales(30+60)	90,000
	Expenses(1+2)	3,000
	Profit:(50%:50%)
	Ryan: $28,500
	Simon:$28,500	57,000
		90,000			90,000

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