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Alagathurai Ajanthan
University of Jaffna
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CONSIGNMENT ACCOUNTS
Consignment
The sales activity of any business can be organized in different ways. With the customers
spread all over, the business entity cannot afford to have only minimum selling points nor can
it have its own resources to have the outlets all over. The business volumes cannot be limited
in any case. The core competence of a manufacturing company is to produce a good quality
product. It creates a network of its own outlets, dealers, commission agents, institutions etc to
distribute its products efficiently and effectively. Thus the selling may be handled directly
through own salesmen or indirectly through agents. In case of direct selling, the company
usually has depots all over. The stocks are transferred to these depots and from their finally
sold to ultimate customers. This involves huge expenses and problems of maintaining the
same on a permanent basis. Hence, the firm could appoint agents to whom stocks will be
given. These agents distribute the products to ultimate customers and receive commission
from the manufacturer. One such way of indirect selling is selling through consignment
agents. The relationship between consignor and consignee is that of Principal-Agent
relationship.
Consignment takes place where goods are transferred from the owner (consignor) to an agent
(consignee) for the purpose of sale by the consignee on behalf of the consignor. It is
important to understand that the relationship of principal (consignor) and agent (consignee)
exists. Because of this agency relationship, ownership of the goods does not transfer to the
consignee.
The consignee, as the selling agent, is entitles to a commission for selling the goods;
expenses may be incurred by both parties; and periodically or on completion of the
consignment, settlement is effected between the parties. If any goods remain unsold then they
are generally returned to the consignor.
Consignment is a fairly common commercial transaction, perhaps more common than many
people may think. Examples include:
A car sales yard in a prominent position may accept motor vehicles on consignment
from other motor dealers or from the general public.
A.Ajanthan
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consignee, he is paid a commission for his services at a fixed rate on the proceeds of the
goods sold by him. In addition to this commission, he is to be reimbursed for all expenses
incurred by him in connection with the consignment sales. Usually these expenses are in the
nature of dock charges, custom duties, carriage, godown rent, advertisement, insurance of the
goods while in his possession etc.
Del Credere Commission: This is additional commission payable to the consignee for taking
over additional responsibility of collecting money from customers. Usually the consignor
advises the consignee to sell the goods consigned to him for cash only, because if such goods
are sold on credit by the consignee and if any amount becomes irrecoverable from the debtors
the loss will fall upon the consignor as the consignee acted as an agent only in effecting the
sales, he does not become responsible for any debts. But sometimes an arrangement is made
between the consignor and the consignee whereby the later guarantees payment and
undertakes responsibility for bad debts. For this the consignee receives an additional
commission known as del credere commission on the total sales. When del-credere
commission is given to the consignee, the consignee will make payment to the consignor,
whether he himself receives the payment or not from the purchaser(s).
Overriding Commission: This type of commission is allowed to the consignee in addition to
the normal commission (as distinct from del credere commission). The idea seems to be to
provide addition incentive to the consignee for the purpose of creating market for new
products.
Account Sales: This is a summary of the transactions of the consignee. It is a means of
conveying information to the consignor and shows the gross proceeds of sale of the goods,
A.Ajanthan
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expenses incurred by the consignee, commission due and the net amount owing to the
consignor.
The following example shows a specimen of an account sale (Account sales of 100 Sony
Radios consigned to Mayuran Traders, Colombo by Alagu Traders, Jaffna.
Particulars
Amount (LKR)
Sale Proceeds:
100 Radios sold at Lkr 9000 each
18,00,000
Less: Expenses:
Freight
5,000
Carriage
2,100
4,300
(11,400)
17,88,600
(1,80,000)
16,08,600
(2,00,000)
14,08,000
E & O.E.
Colombo
MAYURAN
Managing Partner
Advance against Consignment: Until the goods are sold by the consignee, he is not
indebted to the consignor and is not expected to pay for them. This results in a part of the
consignor's Capital being locked up for a period. To overcome his difficulty, the consignee
often remits a sum of money in advance to the consignor. This may be done in the form of an
acceptance of a bill of exchange drawn by the consignor on the Consignee or a simple bank
draft. An advance is readily sent against consignment by the consignee to the consignor when
the consignment goods have become popular in the consignees place.
Pro-forma Invoice: When goods are consigned to an agent they are generally accompanied
by a document called a Pro-forma invoice giving indication of the price of the goods at
which the consignee ought to sell the goods. Pro-Forma Invoice is a statement which is
similar to that of an invoice, but it is called proforma because it does not make the consignee
responsible to pay the amount named therein.
A.Ajanthan
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The consignor generally mentions a higher price than his cost so that consignee does
not know the profit of the consignor.
Difference between Invoice and Account sales
Account sales
Invoice
All expenses and commission are deducted in In invoice, expenses are added but discount
account sales.
All expenses incurred by the consignee are After sale, expenses are paid by the buyer.
borne by the consignor.
The relationship between two parties remains The relationship between two parties is that
as principal and agent.
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But if goods remain unsold, the consignee will send them back to the Consignor and the
Consignor will pay the Consignee all the expenses he has incurred in keeping the goods in
safety and in attempting to push the goods in the market.
Expenses on Consignment
i. Non-recurring expenses: The expenses which do not arise repeatedly for a particular
consignment are called non-recurring expenses. Non-recurring expenses are incurred for
bringing goods to the godown of the consignee. Such expenses are generally incurred on
the consignment as a whole. The non-recurring expenses are incurred partly by the
consignor and partly by the consignee. The consignor usually incurs expenses, such as
packing, cartage, loading charges, freight, etc., on sending the goods to the consignee. But
the consignee usually incurs expenses, such as dock dues, customs duty, clearing charges,
etc., on receiving the goods from the consignor.
ii. Recurring expenses: The indirect expenses incurred repeatedly on the same consignment
are called recurring expenses. Recurring expenses are incurred after the goods have
reached the consignees place or godown. Advertising, discount on bills, commission on
collection of cheques, travelling expenses of salesman, bad debts, etc., are some examples
of recurring expenses incurred by the consignor. On the other hand, godown rent, godown
insurance, sales promotion, etc., are the examples of recurring expenses incurred by the
consignee.
Accounting for Consignment Business
The consignor and consignee keep their own books of accounts. The consignor may send
goods to many consignees. Also, a consignee may act as agent for many consignors. It is
appropriate that both of them would want to know profit or loss made on each consignment.
Books of the Consignor
The transactions relating to ach consignment are recorded in such a way that the profit or loss
of each consignment can be ascertained separately. It requires the preparation of a special
account known as consignment account. A consignment account is a nominal account
prepared to find out the profit or loss of a consignment. The account is debited with the cost
of goods sent, expenses incurred by the consignor and consignee, and the commission due to
the consignee. But the account is credited with the amount of sales affected and also with
closing stock, if any. The balance of this account is either profit or loss.
A.Ajanthan
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In addition to the consignment account, the consignor also prepares the personal account of
the consignee to ascertain the amount due by the consignee. This account is debited with the
amount of sales affected by the consignee and credited with the amount of any advance
received from him, expenses incurred by him and commission payable on sales. The balance
in this account is the amount due by the consignee. Let us see the entries in the books of
consignor as well as consignee.
Situations
On sending goods
Consignors Books
Consignment A/c ...Dr
Goods Sent on Consignment.Cr
the bank
A.Ajanthan
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Trading A / c..Cr
On closing stock/ unsold Stock with the consignee
The Consignment account in the books of consignor will ultimately show the net profit or loss on
account of consignment business. It must be noted that a separate consignment account must be
opened for different agents. This will enable him to know profit or loss on each consignment.
Situations
Goods received from the consignor
No Entry
No Entry
No Entry
No Entry
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(a) In case consignee does not get del Consignors Personal A/c...Dr
credere commission, all bad debts have Consignment debtors A/C....Cr
to be borne by the consignor himself.
(b) In case del credere commission is paid Bad debts A /c.Dr
to the consignee, bad debts are to be Consignment debtors A/C....Cr
borne by him.
When the bills payable accepted in favor of the
Bank A/c.......Cr
No Entry
No Entry
*Note: The discount on bills may be accounted for in one of two ways;
As a normal operating expenses item and charged against the profit and loss account;
or
As a special expense item related to the consignment and therefore charged to the
consignment account.
The method of accounting depends on whether the advance is
interpreted as a method of financing the business generally or whether it is regarded as
a transaction particularly related to the consignment activity.
Format of Consignment Account
LKR
xxx
balance if any)
LKR
By Consignees Personal Account
Xxxx
xxxx
By Goods Sent
on Consignment Xx
xx
by the consignor)
not)
amount)
xx
By
Goods
sent
on Consignment Xx
(Commission,
A.Ajanthan
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consignee)
To Stock Reserve (Difference in the
xx
xx
xxx
Illustration: 1
Aju stores of Jaffna consigned on 1st January, 2010, 50 cases of goods at Lkr.200 each to
Riyash Traders of Warakkapola for sale on commission at 10% on gross sales. Aju stores
paid Lkr.500 for packing, freight and insurance. Riyash Traders took delivery of the goods on
11th January, 2010, after accepting a 15 days bill for Lkr. 5,000 and paid Lkr. 150 for
carriage. They sold 40 cases of goods @ Lkr. 250 and balance for Lkr. 260 each. Their sales
expenses amounted to Lkr. 200. On 31st January, 2005, Riyash Traders forwarded an account
sale together with a draft for the balance.
Prepare account sales rendered by Riyash Traders and also give
journal entries and ledger accounts in the books of Aju stores and Riyash Traders.
Solution:
Account sales of 50 cases of goods received and sold on behalf of Aju stores, Jaffna.
Particulars
Amount(LKR)
Sale Proceeds:
40 cases sold at Lkr 250 each
10,000
2,600
12,600
Less: Expense:
Carriage
150
Sales expenses
200
Commission @ 10%
1,260
Net proceeds
A.Ajanthan
(1,610)
10,990
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(5,000)
5,990
Dr
Cr
(LKR) (LKR)
10,000
10,000
500
Bank A/c
500
5,000
5,000
350
350
Bank A/c
5,000
5,000
12,600
12,600
1,260
1,260
490
490
Bank A/c
Riyash Traders A/c
5,990
5,990
A.Ajanthan
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10,000
Trading A/c
10,000
10,000
Cr
Riyash Traders A/c
12,600
150
Sales expenses
200
350
1,260
490
12,600
12,600
Cr
5,000
350
1260
Bank A/c
5,990
12,600
12,600
Dr
Cr
5,000
A.Ajanthan
10,000
Cr
Consignment to Warakkapola A/c
10,000
13 | P a g e
Cr
Consignment to Warakkapola A/c
490
Description
1.
Cr
(LKR)
350
5,000
5,000
5,000
Bank A/c
5,000
Bank A/c
12,600
12,600
1,260
Commission A/c
1,260
6.
5,990
Bank A/c
5,990
Ledgers
Aju Stores A/c
Dr
Bank A/c (Expenses)
5,000
Commission A/c
1,260
5,990
A.Ajanthan
Cr
12,600
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12,600
12,600
Bank A/c
Dr
Cr
5,000
Commission A/c
Dr
Cr
Aju stores A/c
1,260
Purchase price
advertisement, salesmans salaries and commission, storage, insurance against fire or theft are
not included in the valuation of unsold stock. These expenses do not relate to the goods
unsold and are recorded as marketing expenses. In other words it can be said that all direct
expense or all expenses made whether by the consignor or by the consignee in placing the
goods in a saleable condition (all expenses till the goods reach the godown of the consignee)
will be taken into account while valuing the closing stock. In most cases the amount of
A.Ajanthan
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expenses of both the consignor and the consignee to be added to purchase price is calculated
as a proportion of the total relevant expenses of the whole consignment.
The balance of consignment stock account is a current asset
(appears in the asset side of Balance Sheet). At the commencement of the next financial
period, consignment stock will be transferred to the consignment account, as a debit to
enable the profit or loss on the sale of the remainder of the consignment to be determined.
Illustration: 2
Suppose the Consignor sends to the Consignee, 2,000 Samsung mobile at Lkr.40 per unit and
pays Costa duty, Lkr.3, 000; marine insurance, Lkr.1, 500. The Consignee pays, at the time of
taking delivery, unloading charges of Lkr.500. The Consignee also pays godown rent Lkr.450
and advertisement Lkr.1, 500.if you assume that 400 Samsung mobile remain unsold, the
value of its will be calculated as follows;
LKR
400 Samsung mobile, i.e., 400 @ Rs.40
16,000
th
600
300
100
17,000
The rule regarding valuation is cost or market price whichever is lower. In the market price
of the unsold stock is more than Rs.17, 000, it will be valued at Rs.17, 000. If however, the
market price is less than Rs.17, 000, it will be valued at the market price. Any loss or
depreciation of stock should be duly taken into account.
The unsold stock valued in the above manner will now be brought into books by
passing an entry, as
Consignment Stock A/c ..Dr
Consignment A/c.. Cr
Note: If the pro-forma invoice was made out at a price higher than the cost, stock will also be
valued at invoice and not at cost. But it is wrong to show unsold stock in Balance Sheet at a
figure higher than the cost. Hence for the difference (i.e., difference between value of stock at
invoice price and value of stock at cost) reserve must be created, entry is as follows;
Consignment A/c ..Dr
Stock Reserve A/c... Cr
A.Ajanthan
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Illustration: 3
Y consigns goods to X valued at 8000 cost price. Expenses incurred by Y are: freight 40;
insurance 100; cartage 20.Commission is allowed at 5% on sales. An advance of 5000 is
made by the consignee. X incurs the following expenses: duty 80; cartage inward 40;
advertising 200; and cash sales amounted to 7600. At balance date one-quarter of the goods
are unsold. Calculate the value of unsold goods.
LKR
th of cost price (Lkr 8,000)
2,000
th of consignors expenses [Lkr 160 (freight 40; insurance 100; cartage 20)]
th
of consignees relevant expenses [Lkr 120 (duty 80; cartage inward 40)]
40
30
2,070
Illustration: 4
Ramu of Cochin consigned goods of the cost of Lkr.10000 to his agent, Ajith of Agra and
incurred Lkr.2000 for packing, forwarding and freight. Ajith took delivery of the goods after
spending Lkr.3000 for duty and clearing charges. He sold 3 / 4 th of the goods for Lkr.15000
for which he was entitled to a commission of 5%. His sales expenses amounted to Lkr.300.
Prepare consignment account after showing the valuation of unsold stock.
Solution:
Valuation of stock:
LKR
2500
2,000
Incurred by Ramu
3,000
5,000 *
1,250
Value of stock
3,750
Consignment to Agra A/c
Dr
Goods sent on Consignment A/c
10,000
Cr
Ajith A/c
A.Ajanthan
15,000
3,750
750
2,700
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18,750
18,750
A.Ajanthan
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Solution:
Ledger accounts (in Prasana Furnitures)
Consignment to Kelaniya A/c
Dr
Goods sent on Consignment A/c
80,000
Cr
Sudharaka Furnitures A/c:
59,500
10,000
(Commission)
69,500
16,650
(Bad debts)
89,085
2,935
89,085
Cr
40,000
1,110
3,475
2,000
Balance c / d
69,500
22,915
69,500
Cr
38,000
2,000
40,000
40,000
A.Ajanthan
80,000
Cr
Consignment to Kelaniya A/c
80,000
19 | P a g e
Cr
2935
Valuation of stock:
Number of chairs in stock = 100 80 = 20 chairs
LKR
Original cost of 20 chairs (800 * 20) =
16,000
2500
Incurred by consignee
750
3250 * (20 / 100) =
650
Stock value
16,650
Dr
(LKR)
1,110
Cr
(LKR)
1,110
40,000
40,000
Bank A/c
59,500
Debtors A/c
10,000
69,500
A.Ajanthan
2,000
2,000
20 | P a g e
Bank A/c
8,000
Debtors A/c
8,000
A.Ajanthan
Cr
21 | P a g e
30,000
32000
6200
300
1920
4980
89,085
89,085
Valuation of stock:
Original cost of stock 60*100
= Lkr. 6000
= Lkr. 200
Value of stock
= Lkr. 6200
Cr
24,000
300
1,920
Balance c / d
5,780
32000
32000
Dr
Cr
(LKR) (LKR)
300
300
24,000
24,000
A.Ajanthan
28,000
4,000
3,2000
22 | P a g e
1,920
Commission A/c
1,920
400
400
Debtors A/c
800
(50% of the amount of Lkr. 800 realized in full settlement due from
a customer)
A.Ajanthan
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Adjustment on Loading
The usual adjustments required on loading are as follows:
1. Opening stock: It is always shown on the debit side of the consignment account.
Hence, the difference between the invoice price and the cost price of the stock will be
shown on the credit side of the consignment account through the following entry:
Stock reserve A/c.Dr
Consignment A /c.Cr
2. Goods sent on consignment: Such goods are shown on the debit side of the
consignment account. Thus the difference between invoice price and cost price of
goods sent on consignment will be shown on the credit side of the consignment
account through the following entry:
Goods sent on consignmentDr
Consignment A /cCr
3. Goods returned by the consignee: The return of goods is shown on the credit side of
the consignment account. Therefore the adjustment for the loading will be made on
the debit side of consignment account through the following entry:
Consignment A /cDr
Goods sent on consignment...Cr
4. Closing stock: it is shown on the credit side of consignment account. Hence, the
adjustment for the loading will be made on the debit side through the following entry:
Consignment A /cDr
Stock reserve A/c Cr
In practice, loading done at a fixed percentage of profit on cost bears a fixed relation with the
profit on invoice price of the goods.
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For example, in case goods of the costs of Lkr.5000 are consigned at a profit of 25%
on cost, the invoice price of the product will be 5000 + 25% of 5000.
Invoice price of the product = 5000 + 1250 = Lkr. 6250
The same amount of loading is obtained on applying the percentage of profit on invoice price.
It is ascertained as follows:
Cost of goods is assumed to be 100.
Loading (profit) on cost
= 25
= 125
= 25 / 125 =1 / 5 = 20%
Illustration: 7
Ambika Electronics, Jaipur, consigned 1000 radios to Lakshmi Electronics, Agra, for sale on
commission of 5% including 1% del credere commission. The cost price of a radio was
Lkr.2400. But the invoice was made at Lkr. 3000. The expenses at Jaipur amounted to Lkr.
54000 and that at Agra before reaching the goods at godown was Lkr.46000.
Lakshmi Electronics sold 800 radios @ Lkr. 3200, the sales expenses being Lkr. 28000.
The consignee sent a draft for the amount due along with the
account sales. Give entries and accounts in the books of both the parties.
Books of Ambika Electronics
Journal Entries
1.
Description
Consignment to Agra A/c
Goods sent on Consignment A/c
Dr
(LKR)
3,000,000
Cr
(LKR)
3,000,000
A.Ajanthan
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2.
54,000
Bank A/c
54,000
74,000
74,000
2,560,000
2,560,000
128,000
128,000
620,000
620,000
600,000
600,000
120,000
120,000
404,000
404,000
2,358,000
2,358,000
A.Ajanthan
Cr
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3,000,000
2,560,000
620,000
(Comm.)
600,000
120,000
404,000
3,780,000
3,780,000
Cr
74,000
128,000
Bank
2,358,000
2,560,000
2,560,000
600,000
Cr
Consignment to Agra A/c
3,000,000
2,400,000
3,000,000
3,000,000
Cr
620,000 Balance c /d
620,000
620,000
620,000
Valuation of stock:
Invoice price of stock (Lkr. 3000*200 units)
600,000
54,000
Incurred by consignee
46,000
A.Ajanthan
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620000
Cr
120,000
120,000
120,000
1.
Dr
(LKR)
74,000
Description
Ambika Electronics A/c
Bank / Cash A/c
Cr
(LKR)
74,000
Bank A/c
2,560,000
2,560,000
128,000
Commission A/c
128,000
2,358,000
Bank A/c
2,358,000
2,560,000
128,000
2,358,000
2,560,000
A.Ajanthan
Cr
2,560,000
28 | P a g e
Illustration: 8
Riyash of Warahapolai sent to his agent, Ashan of Puttalam, 500 articles costing Lkr.15 per
article at an invoice price of Lkr.20 per article. The following payments were made by Riyash
in this connection:
Freight and carriage Lkr. 450
Miscellaneous expenditure Lkr. 50
Ashan sent a bank draft for Lkr.3, 000 as an advance against the
Consignment. Ashan sold 300 articles at a flat rate of Lkr.28 per article and sent an Account
Sales showing deduction for storage charges Lkr.50, insurance Lkr.100 and his Commission
of 3% plus 2% Del Credere on gross sale proceeds, and remitted the amount due on
consignment. Ashan also informed Riyash that 50 articles were damaged in transit and thus
they were valued at Lkr.550. Record the above transactions in the books of the consignor and
consignee using cost price basis.
Solution:
Books of Riyash (Consignor)
Journal
1.
Dr
Cr
(LKR) (LKR)
7,500
Description
Consignment to Puttalam A/c
Goods sent on Consignment A/c
7,500
(500 articles sent to Ashan, Agent, and Cost being Lkr.15 per article).
2.
500
Bank A/c
500
3.
450
50
Bank A/c
500
3,000
Ashan A/c
3,000
Ashan A/c
8,400
8,400
A.Ajanthan
570
570
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Bank A/c
4,830
Ashan A/c
4,830
*250
*250
2,950
2,950
2,250
135
Miscellaneous expenditure(50/500*150)
50 damaged articles
15
550
2,950
9.
3,030
3,030
7,500
Trading A/c
7,500
Working Notes:
Calculation of Abnormal Loss
LKR
Cost @ Lkr.15*50 articles
750
Proportionate Expenses:
Freight and carriage (Lkr.450/500*50)
Miscellaneous expenditure (Lkr.50/500*50)
45
5
50
800
A.Ajanthan
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Damaged 50 articles have been have been valued at Lkr.550 Thus, there is a loss of Lkr.250*,
(800- 550). Such a loss would be recorded as follows;
Profit and Loss A/c ..Dr
250
Consignment A/c....Cr
250
Ledgers
Consignment to Puttalam Account
Dr
Goods sent on Consignment A/c
Bank A/c (expenses)
7,500
Cr
Ashan A/c
8,400
Ashan A/c
Expenses
150
(Abnormal Loss)
Commission
420
250
2,950
3,030
11,600
11,600
Ashan A/c
Dr
Cr
3,000
570
4,830
8,400
8,400
Bank A/c
Dr
Cr
Ashan A/c
Ashan A/c
4,830
500
A.Ajanthan
7,500
Cr
Consignment to Puttalam A/c
7,500
31 | P a g e
250
Cr
Consignment to Puttalam A/c
3,030
Description
1.
Riyash A/c
Cr
(LKR)
3,000
Bank A/c
3,000
Riyash A/c
150
Bank A/c
150
50
Bank A/c
8,400
Riyash A/c
8,400
Riyash A/c
420
Commission A/c
420
Riyash A/c
4,830
Bank A/c
4,830
Ledgers
Riyash A/c
Dr
Cr
8,400
150
Commission A/c
420
A.Ajanthan
4,830
32 | P a g e
8,400
8,400
Bank A/c
Riyash A/c
Dr
Cr
3,000
Riyash A/c
150
Riyash A/c
4,830
Commission A/c
Dr
Cr
Riyash A/c
420
Illustration: 9
Riyash of Warahapolai sent to his agent, Ashan of Puttalam, 500 articles costing Lkr.15/- per
article at an invoice price of Lkr.20 per article. The following payments were made by
Riyash in this connection:
Freight and carriage Lkr. 450
Miscellaneous expenditure Lkr. 50
Ashan sent a bank draft for Lkr.3, 000 as an advance against the
Consignment. Ashan sold 300 articles at a flat rate of Lkr.28 per article and sent an Account
Sales showing deduction for storage charges Lkr.50, insurance Lkr.100 and his Commission
of 3% plus 2% Del Credere on gross sale proceeds, and remitted the amount due on
consignment. Ashan also informed Riyash that 50 articles were damaged in transit and thus
they were valued at Lkr.550. Record the above transactions in the books of the consignor and
consignee using invoice price basis.
Solution:
Books of Riyash (Consignor)
Journal
1.
Dr
Cr
(LKR) (LKR)
10,000
Description
Consignment to Puttalam A/c
Goods sent on consignment A/c
10,000
A.Ajanthan
33 | P a g e
Lkr.15)
2.
500
Bank A/c
500
450
50 500
Bank A/c
3,000
Ashan A/c
3,000
Ashan A/c
8,400
8,400
570
Ashan A/c
570
Bank A/c
4,830
Ashan A/c
4,830
250
250
3,700
3,700
3,000
135
15
550
3,700
9.
2,500
2,500
A.Ajanthan
34 | P a g e
750
750
3,030
3,030
7,500
Trading A/c
7,500
10,000
Cr
Ashan A/c
8,400
Ashan A/c
Expenses
150
Commission
420
250
(Abnormal Loss)
570
3,700
2,500
3,030
14,850
14,850
2,500
Trading A/c
7,500
Cr
Consignment to Puttalam A/c
10,000
10,000
10,000
A.Ajanthan
Cr
35 | P a g e
750
2,850
3,600
*In the Balance Sheet the stock on consignment will be shown at Rs.2, 850 [(Lkr.3, 000
Reserve (Lkr.750)]
Illustration: 10
Pradap Traders consigned goods of the cost of Lkr. 30000 to their agent, Sancha Agencies
Uduppiddy, at a profit of 20% on cost. Consignee was allowed a commission of 8% on gross
sales for which he would bear all the expenses at his place.
Pradap traders spent Lkr. 1500 for freight and got an acceptance for Lkr. 15000 from
the consignee. Sancha Agencies paid Lkr. 600 for advertisement and Lkr. 400 for sales
expenses. They sold th of the goods at a profit of 33 1/3% on original cost of it.
Prepare consignment account the books of Pradap Traders and show journal entries in
the books of Sancha Agencies.
Solution:
In the Books of Pradap Traders
Consignment to Uduppiddy Account
Dr
Goods sent on Consignment A/c
36,000
Cr
Sancha Agencies A/c
3,975 (Loading)
14,850
A.Ajanthan
30,000
9,375
6,000
14,850
36 | P a g e
Working Notes:
1. Loading on goods sent:
Invoice price cost price (36,000 30,000) =
6,000
Or
36,000 * 20 / 100 =
6,000
2. Value of stock:
Stock at invoice price, 36,000 * 1 / 4 =
9,000
375
Lkr.9375
3. Stock reserve:
Stock reserve = invoice price of stock cost price of stock
= [36,000*1/4] [30,000*1/4]
= 9,000 7,500
= Lkr. 1500
Or
= 9,000*20/120
= Lkr. 1500
Description
1.
Cr
(LKR)
15,000
Advertisement A/c
600
400
Bank A/c
1,000
Bank A/c
30,000
30,000
A.Ajanthan
2,400
37 | P a g e
Commission A/c
2,400
Losses on Consignment
In case the goods sent on consignment are lost or damaged in transit or otherwise, the loss is
that of the consignor and not of the consignee. Accordingly the consignor will have to make
the entries for such loss. There are two types of losses which may arise in case of a
consignment transaction, viz., Normal Loss and Abnormal Loss.
Normal Loss
Normal loss is natural, unavoidable and inherent in the nature of goods or commodities sent
on consignment (due to evaporation, leakage & breaking the bulk into pieces). This type of
loss is a part of the cost of the consignment, so the consignor does not make separate entry
for such a loss. However, the normal loss has to be taken into consideration while valuating
the unsold consignment stock in the hand of the consignee. Since normal loss is a charge
against gross profit. No additional adjustment is required for this purpose. Moreover, the
same is a part of cost of goods, when valuation of unsold stock is made in case of
consignment account the quantity of such loss (not the amount) should be deducted from the
total quantity of the goods received by the consignee in good condition
The accounting treatment of normal loss is to charge the total cost of the goods to the
remaining goods after the normal loss. In other words, the value of the unsold stock is
calculated in proportion to the total cost of the goods consigned.
Unsold quantity
A.Ajanthan
38 | P a g e
Illustration: 11
Suppose 10,000 tons of coal is dispatched. The cost of 1 tons of coal is Lkr.80 and the freight
incurred is Lkr.36, 000. To the Consignor the total cost comes to Lkr.8, 36,000. In the nature
of coal some shortage is unavoidable. Suppose the Consignee receives only 9,500 tones. It is
legitimate to say that the cost is Lkr.8, 36,000 for 9,500 tons. In that case the Consignor can
properly say that the cost of 1 tons of coal is Lkr.8, 36,000/9500 or Lkr 88. If 2,000 tons of
coal is left unsold with the Consignee, the value of stock will be 2,00088 is equal to Lkr.1,
76,000.
Illustration: 12
From the following particulars ascertain the value of unsold stock on consignment.
LKR
Goods sent (1,000 kgs)
20,000
Consignors expenses
4,000
3,000
40,000
Solution:
Value of unsold stock `
LKR
20,000
4,000
Non-recurring expenses
3,000
27,000
Value of unsold stock 100 kgs (1,000 800 100) will be;
27,000
100 kgs
(1000 kgs-100 kgs)
.. (1)
100 kgs
27,000
A.Ajanthan
39 | P a g e
900 kgs
.. (2)
Illustration: 13
Mr. Achchu Consigned to Mr. Kajan 10,000 kgs of flour, costing Lkr.33, 000. He spent
Lkr.880 as forwarding charges. 12% of the Consignment was lost in weighing and handling.
Mr. Kajan sold 8,200 kgs of flour at Lkr.6 per kg, his selling expenses being Lkr.3, 300 and
Commission 5% on sales. Prepare the Consignment Account.
Cr
49,200
Selling Expenses
3,300
Commission
2,460
2,310*
5,760
(@5% on Rs.49,200)
P & L A/c (Transfer)
11,870
51,510
51,510
Working Notes:
1. Calculation of Closing Stock:
Kgs
10,000
1,200
8,200
Closing Stock
(9,400)
600
A.Ajanthan
40 | P a g e
Dr
Profit and Loss (Abnormal Loss A/c) (with the amount of loss)
Dr
Cr
The procedure for calculating the abnormal loss and the valuation of the remaining stock is
summarized as under:
(i) Calculation of Abnormal loss:
Add:
Cost of goods lost
xxxx
xxxx
xxxx
(xxxx)
xxxx
A.Ajanthan
41 | P a g e
Closing Stock
Expenses incurred before the loss
Total goods consigned
Quantity unsold
Expenses incurred after the loss
(Total quantity sent - Goods lost)
Illustration: 14
Aju smart of Jaffna dispatched 1,000 shirts at Lkr.700 each to Mohan Bros of Colombo, the
consignors paid freight Lkr.7, 500, cartage Lkr.500 and insurance Lkr.2, 500. Mohan Bros.
received only 900 shirts and incurred the following expenses.
LKR
Freight and other Expenses
1, 00,000
Cartage
5,000
Sales expenses
6,000
The consignee sold 600 shirts only. You are required to calculate the value of closing stock.
Solution:
Calculation of the value of unsold stock
Shirts received 900- shirts sold 600 = unsold stock 300
(i)
300 700
2,10,000
A.Ajanthan
42 | P a g e
(ii)
3,150
5,000
105,000
1, 05, 000
300
900
= 35,000
248,150
Illustration: 15
S of Bombay consigned 10,000 Liter of oil to D of Calcutta. The cost of oil was Lkr.2 per
Liter. S paid Lkr.5, 000 as freight and insurance. During transit 250 Liter were accidentally
destroyed for which the insurers paid directly to the consignors Lkr.450 if full settlement of
the claim. D reported that 7,500 Liter was sold @ Lkr.3 per Liter. The expenses being on
godown rent Lkr. 200, on advertisement Rs.1, 000 and on salesman salary Lkr.2, 000. D is
entitled to a commission of 3% plus 1.5% Del credere. D reported a loss of 100 Liter due to
leakage. D settled the accounts by bank draft. Prepare the accounts in the books of S.
20,000 D A/c
5,000
22,500
450
175
D A/c
Expenses (200+1000+2000)
Commission:
Ordinary(22500* 3%)
Cr
5,430
658
1,013
29,213
29,213
A.Ajanthan
Cr
20,000
43 | P a g e
Dr
Cr
5,431
D A/c
Dr
Consignment to Calcutta A/c
Cr
3,200
1,013
18,287
8,400
8,400
Working Notes:
(A) Cost of Goods destroyed
LKR
20,000
Freight
5,000
25,000
(100)
9650
Cost of 9,650 Liter = Lkr. 25, 000 Lkr. 625 = Lkr. 24, 375, So
44 | P a g e
account. They are entitled to a commission of 5% on total sales plus a further of 25%
commission on any surplus price realized over 120 per Bag. 3,000 Bags were sold at Jaffna
@ 110 per Bag. Owing to fall in market price, the value of stock of Bags in hand is to be
reduced by 5%. You are required to prepare;
(i) Consignment Account, and
(ii) Nantha Traders Account.
Solution:
Consignment to Kilinochchi A/c
Dr
Goods sent on Consignment A/c
Bank A/c - (Packing and Freight)
Cr
1,000
Commission (w1)
37,500
P & L A/c
79,000
6,25,000
95,500
7,20,500
7,20,500
Note: 3,000 Bags which were sold at Jaffna @110 per Bag are not to be taken into
consideration since it is not a consignment transaction and hence the same is extended from
Consignment Account. Although the consignor purchased 10,000 Bags, only 6,000 Bags are
related to consignment transaction, balance is not to be taken into Consignment Account at
all.
Nantha Traders Account
Dr
Consignment to Kilinochchi A/c
Cr
5,00,000
1,000
(Selling expenses)
Consignment to Kilinochchi A/c
37,500
(Commission)
Bank A/c
6,25,000
86,500
6,25,000
Workings Notes:
A.Ajanthan
45 | P a g e
6,25,000
(6,00,000)
25,000
31,250
6,250
37,500
1,00,000
500
Less: 5% in reduction
(5,000)
Stock on Consignment
95,500
Illustration: 17
A company sent 300 bales of cotton to its consignee at profit 20% on sale. The cost of each
bale to company is Lkr.600 per bale. The following are the expenses incurred in connection
with this consignment:
(a) Lkr.900 paid by the consignor for dispatching goods.
(b) Lkr.2, 000 paid by the consignee by way of freight, duty and landing charges.
(c) Lkr.1, 000 paid by the consignee by way of godown rent, salaries of salesman.
Required: The valuation of stock at the end (at invoice price) if the consignee sells
away 2/3rd of the consignment.
Solution:
Total bales sent
300
(200)
Bales unsold
100
A.Ajanthan
60,000
46 | P a g e
15,000
75,000
900
2,000
1/3rd thereof
2900
2900*1/3
967
75,967
Note: In the consignment account, stock reserve account will appear at Rs.15, 000 on the
debit side.
Illustration: 18
Alagu sold goods on behalf of Aju Sales Corporation on consignment basis. On 1 st January,
2002 he had with him a stock of Lkr.20, 000 on consignment. During the year, he received
goods worth Lkr.2, 00,000. Alagu had instructions to sell goods at cost plus 25% and was
entitled to a commission of 4% on sales in addition to 1% del credere commission. During
the year ended 31 st December, 2002 cash sales were Lkr.1, 20,000; credit sales Lkr.1, 05,000;
Alagus expenses relating to consignment Lkr.3, 000 being salaries and insurance & bad
debts amounted to Lkr.3, 000.
Required: Prepare necessary accounts in the books of Aju Sales Corporation. (Consignor)
Solution:
Consignment Account
Dr
Consignment Stock b/d
Goods sent on Consignment A/c
Cr
Cash Sales
1,20,000
1,05,000
9,000
Credit Sales
2,250
3,000
P & L A/c
2,25,000
40,000
30,750
2,65,000
2,65,000
Alagu A/c
Dr
A.Ajanthan
Cr
47 | P a g e
9,000
Consignment A/c
(Commission)
2,250
Consignment A/c
(salaries and insurance)
Balance c/d
3,000
2,10,750
2,25,000
2,25,000
Working Notes:
(1) Calculation of Consignment Stock
Sale Price = 100 + 25 = 125
Cost of Sales = Sales 100/125
= 2, 25,000 100/125
= Lkr.1, 80,000
Cost of the goods available for sale = Lkr. 20,000(op. stock) + Lkr.2, 00,000 = Lkr.2,
20,000
Hence stock at the end = Lkr.2, 20,000 - Lkr.1, 80,000 = Lkr.40, 000
(2) Since Alagu is paid del-credere commission, bad debts of Rs.3, 000 would be borne by
him.
Illustration: 19
On 10 January 2010 Kumar Sangakara of Galle consigned 1000 calculators to Mahela,
Kadawatta. The goods are invoiced at Lkr 30 per unit, the cost price being Lkr 20 per unit.
Expenses incurred are: insurance Lkr 150; freight Lkr 1000; cartage and packing Lkr
300. The agent is to receive ordinary commission of 5% and del-credere commission of
4%.Mahela receive the goods on 31 January and pays cash for; freight and cartage Lkr
350;advertising Lkr 250. Repacking of calculators cost is Lkr 200. Mahela sent Kumar
Sangakara a cheque for Lkr 5000 as an advance on 31 January 2010. The following sales are
made by Mahela to 30 June:
Date
2010
Cash
Credit
Feb 6
Mar 18
A.Ajanthan
48 | P a g e
Apr 20
Jun 9
Mahela took three calculators for their own stock to be accounted for at the current selling
price of Lkr 50. Kumar Sangakara balanced the accounts at the end of June and received an
account sale from the consignee to this date:
Prepare:
a) The account sales received by the consignor on 30 June 2010
b) Ledger accounts in the books of the consignor
c) Ledger accounts in the books of the consignee
Solution:
Account Sales
30 June 2010
Date
Units on Credit
Total Value
3,500
10500
4,850
*150
LKR
350
Advertising
250
Repacking machine
200
Commission
17,200
2,270
36,200
(3,070)
Net proceeds
33,130
(5,000)
28,130
*Where goods are to be used by the consignee in some other business activity, the debit is to
the purchase account. If the goods are taken for private purposes the drawings account is
debited.
A.Ajanthan
49 | P a g e
36200 5% = 1810
11500 4% = 460
2270
Cr
(1000*20)
Cash Sales
24,700
Credit Sales
11,500
Insurance
150
Freight
1,000
300
36,200
3,000
300
3,300
Mahela A/c
Freight & Cartage
350
Advertising
250
Repacking goods
200
Commission
2,270
P & L A/c
3,070
14,980
39,500
39,500
Cr
5,000
3,070
28,130
36,200
Bank A/C
Dr
A.Ajanthan
Cr
50 | P a g e
150
1,000
300
1450
Cr
3300
Cr
20,000
Ledger of Mahela
Kumar Sangakara A/c (Consignor)
Dr
Bank A/c- advance
expenses
commission received
Bank - settlement
Cr
24550
11500
36,050
150
28,130
36,200
36,200
Commission Received
Dr
Cr
Kumar Sangakara A/c
2,270
Bank A/c
Dr
A.Ajanthan
Cr
51 | P a g e
350
Advertising
250
Repacking goods
200
5,000
800
28,130
Accounts Receivable
Dr
Kumar Sangakara A/c
Cr
11,500
Illustration: 20
ARA & Co consigned 1,000 tin of Ghee costing Lkr.60 per tin to their agents, Anusha Stores,
at Calcutta. The agents sold 400 tin at Lkr.80 per tin for cash, 400 tins at Lkr.82 per tin on
credit and they took over the balance to their own stock at Lkr.82 per tin. ARA & Co paid
freight and carriage Lkr.500 and miscellaneous expenses Lkr.200. They drew on Anusha
Stores at 3 Months for Lkr.45, 000, which was duly accepted by the later. The expenses
incurred by the Anusha Stores were:
LKR
Carriage
50
Octroi
40
Storage
110
Miscellaneous
100
They were entitled to 5% commission and 2% del credere commission on total gross sale
proceeds. They sent their account sales to their principal showing as a deduction there from
their commission and the various expenses incurred by them a month later. All the debtors
except one who owed Lkr.200 paid cash and the Anusha Stores remitted the amounts due on
consignment. You are required to show;
a) The journal entries in the books of the consignor and
b) Consignment account in the consignors ledger
A.Ajanthan
52 | P a g e
Solution:
Journal Entries
(In the books of Consignor)
Dr
Cr
(LKR) (LKR)
60,000
Description
1.
Consignment A/c
Goods sent on consignment A/c
60,000
Consignment A/c
700
Bank A/c
700
Consignment Account
300
300
81,200
Consignment A/c
81,200
Consignment A/c
5,684
5,684
Consignment A/c
14,516
14,516
60,000
Purchase A/c
60,000
45,000
45,000
Ledger
Consignment of Calcutta Account
Dr
A.Ajanthan
Cr
53 | P a g e
Bank-Expenses
700
300
64,800
16,400
32,000
14,516
81,200
81,200
Illustration: 21
On January 1, 2002, A of Delhi sent on consignment to B of Bombay 200 packets of coffee,
costing Lkr.80 and invoiced pro forma at Lkr.100 each. The freight and other charges paid
by A amounted to Lkr.640. A sent the documents through Bank and drew upon B a bill for
Lkr.10, 000 and discounted the same with the Bank for Lkr.9, 800. The bill was met on
maturity.
On March 15, B sent Account sales (together with the amount due) showing that 150
packets had realized Lkr.100 each and 25 packets Lkr.110 each and 25 packets were shown
as unsold stock. B incurred Lkr.400 as expenses for the entire consignment. B is entitled to a
commission of 6%.
On March 31 B informed A that 15 packets were damaged due to bad packing and it
was estimated that the selling price of the damaged packets would be about Lkr.20 per
packet. Both A and B close their books on March 31.
Prepare ledger accounts in the books of A and B.
Solution:
Books of A, Delhi
Consignment of Bombay Account
Dr
Goods sent on Consignment A/c
20,000 B A/c
17,750
Bank-Expenses
B A/c- Expenses
400 (loading)
B A/c Commission
Stock Reserve Account
P & L A/c
A.Ajanthan
Cr
4,000
648
1,032
600
24,030
54 | P a g e
Bs Account
Dr
Consignment A/c (sales)
Cr
10,000
400
1,065
6,785
36,200
36,200
Cr
20,000
16,000
36,200
36,200
Books of B
A A/c
Dr
Bills Payable
Bank-Expenses
Cr
10,000 Bank
17,750
Commission A/c
1,065
Bank
6,785
18,250
500
18,250
Note:
(i) Stock at the end (At Invoice Price) Lkr.
10 Packets @ Lkr.100 (Invoice Price)
1,000
32
1,032
1,200
48
1248
A.Ajanthan
(600)
55 | P a g e
648
(iii) Since 10 Packets are still in the stock-in-hand, advance to that extent has not been
adjusted. Hence Lkr.500 is carried forward i.e.
10,000 10/200= Lkr. 500
Illustration: 22
Vegetables Oils Ltd., Polannaruwa, consigned 10,000 Liters of Ghee costing Lkr.20 per Liter
to Ranga and Co. of Galle on 1st January 2012. Oils Ltd paid Lkr.50, 000 as freight and
insurance. 250 Liters of Ghee were destroyed on 10-1-2012 in transit. The insurance claim
was settled at Lkr.4, 500 and was paid directly to the consignors. Ranga and Co. took
delivery of the consignment on 20th January 2012 and accepted a bill drawn upon them by
Oils Ltd for Lkr 1, 00,000 for 3 months. On 31 st March 2012 Ranga and co. reported as
Follows.
(i) 7,500 Liters were sold at Lkr.30 per Liter.
(ii) Other expenses were: Godown rent Lkr.2, 000; Wages Lkr.20, 000 Printing and
Stationary including advertising Lkr.10, 000.
(iii) 250 Liters were lost due to leakage.
A.Ajanthan
56 | P a g e
Ranga and Co are entitled to a commission of 4.5% on all the sales affected by them.
They paid the amount due in respect of consignment on 31 st March itself.
Show the consignment account, the account of Ranga and Co. and loss-in-transit
account in the books of consignor for the year ended 31st March 2002.
Solution:
Consignment to Galle Account
Dr
Goods sent on Consignment A/c
Cr
6,250
[(Expenses + Commission),
2,25,000
51,316
9,559
(2,000+20,000+10,000+10,125)
2,92,125
2,92,125
Loss-in-Transit A/c
Consignment A/c
Dr
Cr
4,500
1,750
6,250
6,250
Cr
Balance c/d
100,000
42,125
1,02,875
2,45,000
2,45,000
Working Notes:
(1) Cost of ghee destroyed in transit
Cost of 10,000 Kg of ghee @ Lkr. 20
Freight and Insurance
Total cost of 10,000 Kg
A.Ajanthan
LKR.
2, 00,000
50,000
2, 50,000
Joint Venture & Consignment Accounts
57 | P a g e
Cost of 250 Kg
2, 50,000/10,000*250
(6,250)
2, 43,750
Kg
9,750
(250)
9,500
Cost of 2,000 Kg
2, 43,750
243,750/9,500*2,000
51,316
(3) Since 2000 Kg (9500 7500) of ghee has not been sold.
Proportionate amount of advance is (100,0001/5) Lkr.20, 000 will not be adjusted.
Illustration: 23
5,000 shirts were consigned by Raizada & Co. of Delhi to Zing of Tokyo at cost of 375 each.
Raizada & Co. paid freight 50,000 and Insurance 7,500. During the transit 500 shirts were
totally damaged by fire. Zing took delivery of the remaining shirts and paid 72,000 on custom
duty. Zing had sent a bank draft to Raizada & Co. for 2, 50,000 as advance payment. 4,000
shirts were sold by him at 500 each. Expenses incurred by Zing on godown rent and
advertisement etc. amounted to 10,000. He is entitled to a commission of 5%. One of the
customer to whom the goods were sold on credit could not pay the cost of 25 shirts.
Prepare the Consignment Account and the Account of Zing in the books of Raizada &
Co. (Zing settled his account immediately. Nothing was recovered from the insurer for the
damaged goods).
Solution:
Consignment A/c
Dr
Goods sent on Consignment A/c
Bank A/c - freight and insurance
Zing A/c:
[(Custom Duty +Godown Rent,
Adv. Etc+ Commission),
A.Ajanthan
Cr
19,87,500
51,316
12,500
1,93,250
58 | P a g e
(72,000+10,000+100000)]
9,559
Debts
Profit and Loss A/c
2,01,250
12,500
2,67,500
23,94,500
23,94,500
Zing A/c
Dr
Consignment A/c (Sales)
Cr
2,50,000
1,82,000
15,55,500
19,87,500
Cr
1,93,250
1,93,250
1,93,250
Working Notes:
1.Valuation of goods Lost-in-transit and unsold Stock: Lkr
Total Cost
Add: Consignors Expenses
Total Cost of 5,000 Shirts
Less: Lost-in-transit 1932500/5000*500
Add: Non-recurring Ex. of Consignee
Total Cost of 4,500 Shirts
18, 75,000
57,500
19, 32,500
1, 93,250
72,000
18, 11,250
Note: Since Del Credere Commission is not given by the consignor to the consignee, amount
of bad debt is to be charged against Consignment Account.
A.Ajanthan
59 | P a g e
Illustration: 24
Lubrizols Ltd. of Mumbai consigned 1,000 barrels of lubricant oil costing Liters 800 per
barrel to Central Oil Co. of Kolkata on 1.1.2012. Lubrizols Ltd. paid Lkr 50,000 as freight
and insurance. 25 barrels were destroyed on 7.1.2012 in transit. The insurance claim was
settled at Lkr 15,000 and was paid directly to the consignor. Central Oil took delivery of the
consignment on 19.1.2012 and accepted a bill drawn upon them by Lubrizols Ltd., for Lkr 5,
00,000 for 3 months. On 31.3.2012 Central Oil reported as follows:
(i) 750 barrels were sold as Lkr 1,200 per barrel.
(ii) The other expenses were:
LKR
Clearing charges
11,250
Godown Rent
10,000
Wages
30,000
Cr
9,00,000
21,250
1,76,842
71,250
(11250+10,000+30000+20000)]
Commissions @5%
45,000
1,31,842
10,98,092
A.Ajanthan
10,98,092
60 | P a g e
Cr
(Sales)
5,00,000
1,82,000
Expenses
71,250
Commission
45,000
2,83,750
9,00,000
Cr
15,000
6,250
21,250
21,250
Workings Notes:
1.Valuation of goods Lost-in-transit and unsold Stock:
Lkr
Total Cost (1000*800)
8, 00,000
50,000
8, 50,000
(21,250)
11,250
8, 40,000
Illustration: 25
Mr. X, the consignor, consigned goods to Mr. Y 100 Radio sets valued Lkr 50,000. This was
made by adding 25% on cost. Mr. X paid Lkr 5,000 for freight and insurance. 20 sets are lost
in- transit for which Mr. X received Lkr 5,000 from the Insurance Company.
Mr. Y received remaining goods in good condition. He incurred Lkr 4,000 for freight and
miscellaneous expenses and Lkr 3,000 for godown rent. He sold 60 sets for Lkr 50,000. Show
the necessary ledger account in the books of Mr. X assuming that Mr. Y was entitled to an
A.Ajanthan
61 | P a g e
ordinary Commission of 10% on sales and 5% Del Credere Commission on sales. He also
reported that Lkr 1,000 were proved bad. Prepare the necessary Accounts.
Solution:
Consignment A/c
Dr
Goods sent on Consignment A/c
Bank A/c - freight and insurance
Cr
10,000
Y A/c:
50,000
11,000
Godown Rent
12,000
5,000
2,500
2,000
2,000
9,500
83,000
83,000
Y A/c
Dr
Consignment A/c
Cr
(Sales)
Expenses
7,000
Commission (5000+2500)
7,500
Balance C/d
50,000
35,500
50,000
Cr
2,000
5,000
A.Ajanthan
4,000
11,000
62 | P a g e
Working Notes:
(1) Calculation of Loading:
I.P
Load
C.P
125
25
100
C.P=100/125*50000
= 40000
Invoice price is Lkr 50000, so Loading is Lkr 10,000(50,000 40,000)
Loading per set = Lkr 10,000 100 = Lkr 100
(2) Valuation of goods lost in transit and unsold stock
LKR
Total invoice price
50,000
(5,000)
55,000
(11,000)
44,000
4,000
48,000
Illustration: 26
From the following two statements, prepare Consignment A/c and Consignees A/c in the
books of Consignor, presuming that the goods were invoiced at 20% above cost.
M/s Vijay & Company
Mumbai
Pune
No 2355
Proforma Invoice
A.Ajanthan
63 | P a g e
Amount
Amount
Lkr
Lkr
13,44,000
4,000
Insurance 6000
6,000
Sundries
2,000
Total
12,000
13,56,000
E&OE
Sign
Mumbai
Pune
Mumbai
(Account sales of 800 fans received from Vijay & Company, Mumbai)
Date: 21st September 2012
Amount
Amount
(LKR)
(LKR)
12,00,000
4,500
Insurance
1,500
Octroi
12,000
Commission @10%
1,20,000
Total
(1,38,000)
10,62,000
7,50,000
3,12,000
E&OE
Sign
Mumbai
A.Ajanthan
Cr
64 | P a g e
(sale proceeds)
& Sundries
12,00,000
2,24,000
3,42,000
18,000
Commission
1,20,000
56,000
stock)
2,16,000
17,66,000
17,66,000
Cr
(Sales)
Expenses
18,000
Commission
1,20,000
Bank A/c
3,12,000
7,50,000
12,00,000
12,00,000
Workings Notes:
Loading on consignment
Invoice price of fans consigned
Lkr
1,680
280
2,24,000
13,44,000
Consignors expenses
12,000
12,000
Loading on consignment
13,68,000
800
Fans sold
600
A.Ajanthan
65 | P a g e
In Stock
200
3,42,000
56,000
Illustration: 27
On 1.7.2012, Mantu of Chennai consigned goods of the value of Lkr 50,000 to Pandey of
Patna. This made by adding 25% on cost. Mantu paid that on Lkr 2,500 for freight and Lkr
1,500 for insurance. During transit1/10 th of the goods was totally destroyed by fire and a sum
of Lkr 2,400 was realized from the insurance company. On arrival of the goods, Pandey paid
Lkr 1,800 as carriage to godown. During the year ended 30th June 2013, Pandey paid Lkr
3,600 for godown rent and Lkr 1,900 for selling expenses.1/9
th
again destroyed by fire in godown and nothing was received from the insurance company. On
1.6.2013, Pandey sold half (1/2) the original goods for Lkr 30,000 and changed a commission
of 5% on sales. As on 30.6.2013, Pandey sent a bank draft to Mantu for the amount so far due
from him. You are required to prepare the following ledger accounts in the books of Mantu of
Chennai for the year ended 30.6.2013.
(a) Consignment to Patna Account; (b) Goods Destroyed by Fire Account; and (c) Personal
Account of Pandey.
Solution:
Consignment to Patna Account
Dr
Cr
10,000
30,000
(2500+1500)
11,000
Pandey A/c :
16,800
Carriage Inward
1800
Godown Rent
3600
Selling Expenses
1900
7300
1,500
2000
Loading
Stock reserve A/c (Loading on
3000
unsold stock)
A.Ajanthan
66 | P a g e
17,66,000
17,66,000
Cr
Consignment to Patna A/c :
2,000
In transit
5,400 Loading
In Godown
2,400
6,600
11,000
11,000
Pandey Account
Dr
Consignment to Patna A/c
Cr
(Sale proceeds)
Expenses
7,300
Commission
1,500
Draft A/c
30,000
21,200
30,000
Working Notes:
Valuation of goods destroyed by fire and unsold stock
50,000
4,000
54000
(5400)
48,600
1,800
50,400
(5,600)
Value of 8/10 th
44,800
A.Ajanthan
67 | P a g e
Cost (Lkr)
Invoice (Lkr)
Goods sent
75, 50,000
66, 44,000
90, 00,000
10% of goods
7, 55,000
10, 00,000
Total sales
73, 99,000
1, 00, 00,000
1, 51,000
1, 35,900
There is no closing stock here as all unsold goods were taken over by Gayatri. The
commission is payable only on sales to outsiders and not on goods taken over by Gayatri.
Thus, commission is 8.5% on Lkr 10,000,000 i.e. Lkr 8, 50,000
The required ledger accounts are shown below.
Consignment to Gayatri A/c
Dr
A.Ajanthan
Cr
68 | P a g e
10,000,000
A/c
Bank A/c - transportation)
1,35,900
over)
Gayatris A/c:
Unloading charges
5,25,000
Commission
8,50,000
13,75,000
To P & L A/c
3,85,900
1,01,35,900
1,01,35,900
Gayatris A/c
Dr
Consignment A/c
Cr
(Sale proceeds)
Expenses
5,25,000
Commission
8,50,000
Bank A/c
87,60,900
1,01,35,900
1,01,35,900
10,000
188
10,188
(250/10000*7500)
Calculation of closing stock
Oil consigned to Delhi
Kg
10,000
(250)
(100)
(7,500)
2,150
400,000
(10,188)
389,812
A.Ajanthan
86,849
69 | P a g e
Calculation of commission
Ordinary @ 3% on 450000
13,500
6,750
20,250
As the consignee has paid Del Credre Commission, the responsibility of bad debts is his.
Hence no entry is needed to be passed in the books of consignor.
Illustration: 29
Sangita Machine Corporation sent 200 sewing machines to Rita agencies. It spent Lkr 7500
on packing. The cost of each machine was Lkr 2,000, but it was invoiced at 20% above cost.
20 machines were lost in transit & insurance company accepted claim of Lkr 20,000 only.
Rita agencies paid freight of Lkr 9,000, carriage Lkr 3,600, and Octroi Lkr 1,800 and rent Lkr
1800. They sold 150 machines at Lkr 3,500 per machine. They were entitled to commission
of 5% on invoice price and additional 20% of any excess realized on invoice price and 2%
Del Credre commission. They accepted a bill drawn by Sangita Machine Corporation for Lkr
3, 00,000 and remitted the balance by demand draft along with account sale. Draw up
necessary ledger accounts in the books of Sangita Machine Corporation and Rita Agencies.
Solution:
Consignment to Rita Agencies A/c
Dr
Goods sent on Consignment A/c
Bank A/c - (Packing Expenses)
Cr
5,25,000
48,750
Freight
9,000
75,525
Carriage
3,600
80,000
Octroi
1,800
(Loading)
Rent
1,800
Commission
Abnormal loss A/c
61,500
77,700
8,000
(Load removed)
Stock Reserve A/c
P & L A/c
12,000
1,44,075
7,29,275
A.Ajanthan
7,29,275
70 | P a g e
Cr
(Sale proceeds)
Expenses
16,200
Commission
61,500
3,00,000
Bank A/c
1,47,300
5,25,000
5,25,000
48,000
750
48750
72,000
1,125
2,400
75,525
12,000
Calculation of Commission:
Invoice price of machines sold (2400*150)
360,000
Commission @ 5% on this
18,000
(a)
165,000
33,000
(b)
10,500
(c)
61,500
A.Ajanthan
71 | P a g e
Commission A/c
61,500
3,00,000
Bank A/c
1,47,300
5,25,000
Cr
5,25,000
5,25,000
Illustration: 30
Ram of Patna consigns to Shyam of Delhi for sale at invoice price or over. Shyam is entitled
to a commission @ 5% on invoice price and 25% of any surplus price realized. Ram draws
on Shyam at 90 days sight for 80% of the invoice price as security money. Shyam remits the
balance of proceeds after sales, deducting his commission by sight draft. Goods consigned by
Ram to Shyam costing Lkr 20,900 including freight and were invoiced at Lkr 28,400. Sales
made by Shyam were Lkr 26,760 and goods in his hand unsold at 31st Dec, represented an
invoice price of Lkr 6,920. (Original cost including freight Lkr 5,220). Sight draft received by
Ram from Shyam up to 31st Dec was Lkr 6,280. Others were in- transit. Prepare necessary
Ledger Accounts.
Solution:
Consignment to Delhi Account
Dr
Goods sent on Consignment A/c
Cr
`(6,920 5,220)
P & L A/c
26,760
7,500
6,920
41,180
Shyam Account
Dr
Cr
22,720
(Sale proceeds)
Balance c/d (` 6,920 x 80%)
A.Ajanthan
2,394
- commission
72 | P a g e
Draft A/c
6,280
902
32,296
Cr
Consignment to Delhi A/c
28,400
7,500
20,900
28,400
28,400
Working Notes:
Calculation of Commission:
LKR
28,400
(6,920)
21,480
26,760
21,480
Surplus price
5,280
= 1,074
=1,320
2,394
Summary
Consignment is a specialized kind of transaction between consignor and consignee, whereby
consignor sends goods to consignee to be sold by the latter on behalf of the former for a
mutually agreed commission. The goods consigned to the agent cannot be treated as sales at
the time of the consignment; they are treated as sales only when those are sold by the
consignee. In a consignment transaction, the consignor sends goods to the consignee and
makes a bill called Proforma Invoice. The value recorded in the proforma invoice may be the
actual cost to the consignor or actual cost to the consignor plus mark-up. The objectives of
A.Ajanthan
73 | P a g e
Keywords
Consignment: A shipment of goods by a manufacturer or wholesale dealer to an agent to be
sold by him on commission basis, on the risk and account of the former, is known as
consignment.
Consignor: The person who sends the goods to the agent to be sold by him as commission
basis is called the consignor.
Del Credere Commission: It is a commission which is paid by the consignor to the
consignee for taking additional risk of recovery of debts on account of sales made on credit
by the consignee on behalf of the consignor.
Account Sales: It is a statement which contains the details of sales, expenses incurred and
commission entitlement and balance due to the consignor.
Normal Loss: The normal loss is one which cannot be avoided because of the basic nature of
the goods/processes involved.
74 | P a g e
Objective:
State whether each of the following statements is 'true' or 'false'.
1. Despatch of goods on consignment amounts to sale of goods by the consignor (F)
2. A consignee is paid over-riding commission for bearing the risk of bad debts on
account of credit sales made by him (F)
3. Sales account and account sales are synonymous terms (F)
4. The consignee passes no entry in his books for unsold stock of the consignor, lying
with him (T)
5. Discount on bills discounted is debited on profit and loss account and not to the
consignment account on account of it being treated as a financial expense (T)
6. Abnormal loss of stock arises on account of natural and inherent characteristics of
goods (F)
7. As soon as goods are sent to the consignee, consignee becomes liable to pay for them
(F)
8. An account sale is submitted by consignee to the consignor (T)
9. Value of abnormal loss or stock is debited to consignment account (F)
Fill in the Blanks:
1. Goods dispatched by a manufacturer or wholesaler to an agent for the purpose of sale
are called ----------------------.
2. Abnormal loss is credited to ------------------------ account.
3. Del-Credere commission is normally calculated on ---------------------- sales.
4. The document giving the description of goods and their price sent to the consignee by
the consignor is known as -------------------------.
5. Consignment account of the nature of a ------------------------- account.
Answers:
1. Consignment
2. Consignment
3. Total
4. Pro forma invoice
5. Normal
A.Ajanthan
75 | P a g e
A.Ajanthan
76 | P a g e
Answers:
1. d
2. a
3. a
4. c
5. c
6. a
Suggested Readings
1. Fundamentals of Accounting by R.L. Gupta and V.K. Gupta, Sultan Chand and Sons, New
Delhi.
2. Advanced Accounting by R.L. Gupta and M. Radhaswamy, Sultan Chand and Sons, New
Delhi.
3. Advanced Accounting by Ashok Sehgal and Deepak Sehgal, Taxmann Allied Services Pvt.
Ltd., New Delhi.
4. Advanced Accounts by M.C. Shukla, T.S. Grewal and S.C. Gupta, S. Chand and Co. Ltd.,
New Delhi.
A.Ajanthan
77 | P a g e
A.Ajanthan
78 | P a g e
party may have financial resources but may not be in a position either to buy at lower price or
to sell at higher price. A combination of all these parties in a common venture may result in a
successful and remunerative business.
The business activities for which Joint Ventures (JV) are formed could be :
Producing a film.
Consignment
Joint Venture
Nature of Business
Agent
is
not
necessarily
partner; hence it
is
not
partnership.
Powers
a It
is
partnership(Though
Scope
Finance
Profits
commission
Ventures
Co-ventures
in
the
A.Ajanthan
79 | P a g e
Number of Persons
Joint Venture
There is no need for firm name.
Partnership
A Partnership firm always has a
firm name.
Continuance
Books of accounts
Similar business
Registration
the
registration
of
Minor
A.Ajanthan
80 | P a g e
(A) When one of the Co-ventures is appointed to manage the Joint Venture
Under this method, only one co-venturer records the joint venture transactions who open a
joint venture account and personal accounts of other co-venturers.
This method of recording transactions is followed when the business is not very large.
Under this method, one of the venturers is entrusted with the task of recording the
transactions in his book. In this case, all other co-venturers will send their contributions to
such a venturer. He will open a joint venture account and the personal accounts of other coventurers in his books. The joint venture account is prepared to ascertain the profit or loss of
the joint venture. It is a nominal account. All the expenses are debited and the incomes are
credited in the joint venture account.
The difference between debit and credit is the profit or loss of the venture. The
venturer who manages the joint venture transfers his share to profit and loss account and the
share of other venturers to their personal accounts. The personal accounts of other coventurers are prepared to ascertain the amount due from them.
The following entries are passed in the books of the co-venturer appointed to manage
the affairs before the necessary accounts of the joint venture:
1)
Bank A/c....Dr
Other co-venturers A/c...Cr
2)
When the goods are purchased for the joint Joint venture A/c....Dr
venture
A.Ajanthan
81 | P a g e
When goods are supplied out of his stock by the Joint venture A/c....Dr
co-venturer who is recording the transaction
4)
Purchase A/c.......Cr
Joint venture A/c...Dr
6)
Bank A/c.....Cr
7)
sales
Bank A/c...Dr
When some cash discounts are allowed to the Joint venture A/c..Dr
debtor making payment or some bad debts are
incurred
11) When some cash or bills receivable are received Bank / bills receivable A/cDr
A.Ajanthan
82 | P a g e
13) When the unsold stock of joint venture is taken Purchase A/c.....Dr
over by the co-venturer recording the transactions
If the unsold stock is taken over by some other co- Co-venturers personal A/c...Dr
venturers
Bank A/cCr
A.Ajanthan
83 | P a g e
Illustration: 1
Madhu and Muthu entered into a joint venture in which Madhu would manage the business.
They brought Lkr. 10,000 each in case for the venture. Madhu purchased goods for Lkr.
19,000 and sold it for Lkr. 25,000. Expenses on the venture paid by him amounted to Lkr.1,
000. Madhu would get a commission of 4% on sales. They shared profits and losses equally.
Pass journal entries and prepare ledger accounts in the books of Madhu.
Solution:
In the Books of Madhu
Journal Entries
Description
LKR
Bank A/c.Dr
LKR
10,000
Muthus A/c...Cr
10,000
19,000
Bank A/c....Cr
19,000
1,000
Bank A/c....Cr
1,000
25,000
25,000
1,000
Commission A/ cCr
1,000
4,000
2,000
Muthus A/c...Cr
2,000
12,000
Bank A/c........Cr
A.Ajanthan
12,000
84 | P a g e
Amount
Particulars
(LKR)
Bank (purchased goods)
1,000
1,000
(LKR)
Bank (expenses)
Amount
25,000
2,000
(Half of profit)
Muthu
(Half of profit)
2,000
4,000
25,000
25,000
Muthu A/c
Particulars
Amount
Particulars
(LKR)
Bank
Amount
(LKR)
12,000 Bank
10,000
2,000
12,000
Illustration: 2
Anil entered into a contract to construct a building for Lkr. 200,000. Anil and Sunil
contributed Lkr. 100,000 and Lkr. 75,000, respectively. They agreed to share profits and
losses in the ratio of 4:3. It was decided that the work would be looked after by Anil who
would be paid 5% commission on contract price in addition to his share of profit. Anil bought
the necessary materials for Lkr. 160,000 and paid Lkr. 4500 for expenses. Anil also
contributed building materials from his own stock worth Lkr. 10,000. Lkr. 2,500 remained to
be paid for wages. Sunil took over the stock of materials for an agreed valuation of Lkr.
8,000. The building was completed and the contract money was duly received.
Record the above transactions in the books of Anil and show the joint venture account
that the outstanding wages were paid by Anil.
Solution:
A.Ajanthan
85 | P a g e
LKR
Bank A/c.Dr
LKR
75,000
Sunils A/c...Cr
75,000
160,000
Bank A/c.....Cr
160,000
(Purchased materials)
Joint venture A/c....Dr
4,500
Bank A/c.....Cr
4,500
10,000
Purchase A/c...Cr
10,000
2,500
2,500
10,000
Commission A/ c...Cr
10,000
200,000
200,000
8,000
8,000
21,000
12,000
Sunils A/c...Cr
9,000
2,500
Bank A/c....Cr
A.Ajanthan
2,500
86 | P a g e
76,000
Bank A/c........Cr
76,000
Amount
Bank (purchased)
Bank (expenses)
Purchases (material supplied)
Outstanding wages
Particulars
Amount
(LKR)
(LKR)
160,000 Bank
200,000
4500 Sunil
8,000
10,000
2,500
10,000
12,000
(4/7th of profit)
Sunil (3/7th of profit)
9,000
21,000
208,000
208,000
Sunil A/c
Particulars
Amount
Particulars
(LKR)
Joint venture
Bank
(LKR)
8,000 Bank
75,000
Amount
9,000
84,000
Illustration: 3
Anu and Anil entered into a joint venture agreement to share the profits and losses in the ratio
of 2:1. Anu supplied goods worth Lkr.30, 000 to Anil, and incurred expenses amounting to
Lkr.1, 000 for freight and insurance. During transit the goods costing Lkr.2, 500 were
damaged and a sum of Lkr.1, 500 was received from the insurance company.anil reported
that 90% of the remaining goods were sold at a profit of 30% of their original cost. Towards
the end of the venture, a fire damaged the balance stock lying unsold with Anil. The goods
A.Ajanthan
87 | P a g e
were not insured and Anil agreed to compensate Anu by paying in cash 80% of the aggregate
of the original cost of such goods, plus proportionate expenses incurred by Anu. In addition
to the joint venture share of profit, Anil was also entitled to a commission of 5% on net
profits of the joint venture after charging such commission. Selling expenses incurred by Anil
totaled Lkr. 500. Anil had earlier remitted an advance of Lkr. 5,000. Anil paid the balance
due to Anu by a bank draft.
Prepare the joint venture account and Anils account in Anus books.
Solution:
In the Books of Anu
Joint Venture A/c
Particulars
Amount
Particulars
(LKR)
Purchased (goods supplied)
(LKR)
Bank (expenses)
Anil (expenses)
Anil
Amount
1,500
32,175
2,273
goods)
(Commission 4,448*5/105)
Profit and loss A/c
2,824
Anil
1,412
212
4,236
35,948
35,948
Anils A/c
Particulars
Amount
Particulars
(LKR)
Joint venture (Sales)
Joint
venture
damaged goods)
(Claim
(LKR)
Amount
Joint venture(Expenses)
2,273 Joint venture (Commission)
Joint venture(Profit)
5,000
500
212
1,412
27,324
34,448
Working Notes:
A.Ajanthan
88 | P a g e
1. Computation of sales:
(LKR)
30,000
(2,500)
27,500
24,750
7,425
Sales
32,175
(LKR)
2750
92
Total loss
2842
2273
3. Abnormal loss in respect of damage in transit relates to the joint venture. Hence, no
computation is required.
Illustration: 4
Ram, Mohan and Rahim were partners in a joint venture, each contributing Lkr. 5,000. Ram
purchased goods for Lkr.13, 000 and also supplied goods worth Lkr. 1,000 from his stock.
Rahim also supplied goods to the value of Lkr.1, 500 from stock and his expenses in
connection with the supplying of goods on account of joint venture amounted to Lkr. 50.
Ram paid Lkr. 250 for expenses in connection with the joint venture. Ram sold goods on
behalf of the joint venture and realized Lkr. 20,800. Ram was entitled to a commission of 5%
on sales. Unsold goods amounting to Lkr. 500 were taken by Mohan, Ram accounts of
Mohan and Rahim by Bank draft.
Record these transactions in Rams Journal and also prepare Joint Venture Account
and Mohan and Rahim Accounts in Rams Books.
Solution:
Rams Journal
Description
LKR
Bank A/c.Dr
LKR
10,000
Mohans A/c..Cr
5,000
Rahims A/c..Cr
5,000
A.Ajanthan
89 | P a g e
13,000
Bank A/c.....Cr
13,000
(purchased goods)
Joint venture A/c....Dr
1,000
1,000
1,550
Rahim.Cr
1,550
( Goods for Lkr. 1,500 supplied for joint venture and expenses
Lkr.50 incurred by Rahim)
Joint venture A/c....Dr
250
Bank A/c.....Cr
250
20,800
20,800
1,040
Commission A/ c...Cr
1,040
500
500
4,460
1,486
Mohan A/c..Cr
1,487
Rahim A/c...Cr
1,487
5,987
Rahim A/c..Dr
5,987
Bank A/c........Cr
14,024
A.Ajanthan
90 | P a g e
Amount
Particulars
(LKR)
Bank A/c (Purchases)
(LKR)
1,550
250
1,040
1,486
Mohan
1,487
Rahim
1,487
Amount
20,800
500
4,460
21,300
21,300
Mohan A/c
Particulars
Amount
Particulars
(LKR)
Joint venture A/c
Bank A/c
Amount
(LKR)
5,000
1,487
6,487
6,487
Rahim A/c
Particulars
Amount
Particulars
(LKR)
Bank A/c
(LKR)
8,037
Amount
5,000
1,550
1,487
8,037
(B) When a separate set of books is not maintained for recording Joint Venture
transactions
Under this method, each co-venture will prepare two accounts namely (i) joint venture
account and (ii) The personal account of other co-ventures. There is no much difference in
the recording of transactions between the previous and this method. The main difference is
A.Ajanthan
91 | P a g e
that under this method, all transactions relating to joint venture are recorded in the books of
all the co-venturers. Here each venturer prepares joint venture account to find out the profit or
loss and other venturers accounts to ascertain the amount due to or due by the venturer.
The usual entries under this method are as follows:
1)
2)
When the venturer maintaining the accounts incurs Joint venture A/c..Dr
Bank A/c.....Cr
6)
Co-venturer A/c..Cr
When the co-venturer meet any expenses for the Joint venture A/c.Dr
venture
5)
Purchase A/c......Cr
Co -venturer A/c..Cr
When a bill of exchange is received from the co- Bill receivable A/cDr
venturer
Co -venturer A/c..Cr
Bank A/c..Dr
Joint venture
(Discount)A/c.Dr
Bill receivable A/c...Cr
7)
8)
9)
Co -venturer A/c.Dr
Joint venture A/c..Cr
11) When the venturer maintaining the accounts is Joint venture A/c.Dr
entitled to commission
Commission A/c.......Cr
12) When the co-venturer is entitled to certain Joint venture A/c.Dr
commission
Co -venturer A/c..Cr
13) When the venturer maintaining the accounts is Joint venture A/c.Dr
entitled to interest on his investment
Interest A/c...Cr
A.Ajanthan
92 | P a g e
14) When the co-venturer is entitled to interest on his Joint venture A/c.Dr
investment
Co -venturer A/c...Cr
15) If the unsold stock is taken over by venturer Purchase A/c...Dr
maintaining the accounts
Joint venture A/c...Cr
16) If the unsold stock is taken over by co-venturer
Co -venturer A/c.Dr
Joint venture A/c...Cr
17)
18)
Co -venturer A/c.Dr
Bank A/cCr
Bank A/c.Dr
Co -venturer A/c...Cr
Illustration: 1
Aji and Giji entered into a joint venture to purchase and sell goods, and to share profits and
losses equally. Aji supplied goods for Lkr. 20000 and Giji supplied for Lkr. 15000. Aji paid
Lkr.1000 for rent while Giji paid Lkr. 500for advertisement. Aji sold some of the goods for
Lkr. 23000 and Giji sold for Lkr. 22000.on closing the venture, Aji took over the unsold
goods for Lkr. 1500.
Pass journal entries and prepare ledger account in the books of both Aji and Giji.
Solution:
A.Ajanthan
93 | P a g e
LKR
LKR
20,000
Purchase A/c..............................................Cr
20,000
1,000
Bank A/c.......Cr
1,000
15,000
Gijis A/c......Cr
15,000
500
Gijis A/c......Cr
500
23,000
23,000
22,000
22,000
1,500
1,500
10,000
5,000
Gijis A/c......Cr
5,000
1,500
Gijis A/c......Cr
1,500
A.Ajanthan
94 | P a g e
Amount
Particulars
Amount
(LKR)
Purchase A/c (Goods Supplied)
(LKR)
23,000
22,000
Giji (Expenses)
1,500
500
5000
Giji
5000
10,000
46,500
46,500
Gijis A/c
Particulars
Amount
Particulars
Amount
(LKR)
Joint venture A/c (Sales)
(LKR)
15000
500
5000
Bank A/c
1500
22,000
22,000
LKR
LKR
15,000
Purchase A/c..................................................Cr
15,000
500
Bank A/c........Cr
500
20,000
Ajis A/c.........Cr
A.Ajanthan
20,000
95 | P a g e
1,000
Ajis A/c.........Cr
1,000
22,000
22,000
23,000
23,000
15,00
1,500
10,000
5,000
Ajis A/c.........Cr
5,000
1,500
Bank A/c........Cr
1,500
Amount
Particulars
(LKR)
Purchases A/c
Aji (Expenses)
22,000
23,000
1,500
1,000
5000
Aji
5000
10,000
46,500
A.Ajanthan
(LKR)
Amount
46,500
96 | P a g e
Aji A/c
Particulars
Amount
Particulars
Amount
(LKR)
Joint venture A/c (Sales)
(LKR)
(Goods Supplied)
Bank A/c
1500 (Expenses)
20,000
1,000
5,000
26,000
Illustration: 2
X and Y entered into a joint venture agreeing to share profits and losses equally. The
following transactions took place during the course of venture.
LKR
X purchased goods for cash
1,250
3,500
250
400
3,500
105
Sales made by X
2,500
Commission payable to X
75
280
Prepare the necessary accounts in the books of X and Y assuming that the accounts
are finally settled between them.
Solution:
Ledger of X
Joint Venture Account
Particulars
Amount
(LKR)
A.Ajanthan
Particulars
Amount
(LKR)
97 | P a g e
3,500
2,500
Y A/c (Expenses)
400
Y A/c (commission)
105
Commission A/c
Profit and loss A/c
Y A/c
280
75
350
350
700
6,280
6,280
Y A/c
Particulars
Amount
Particulars
(LKR)
Joint venture A/c (Sales)
Amount
(LKR)
(Goods purchased)
575 (Expenses)
3,500
400
105
350
4,355
4,355
Ledger of Y
Joint Venture Account
Particulars
Amount
(LKR)
A.Ajanthan
Particulars
Amount
(LKR)
98 | P a g e
2,500
3500
X A/c (Expenses)
400 taken)
X A/c (commission)
75
Commission A/c
Profit and loss A/c
X A/c
280
105
350
350
700
6,280
6,280
X A/c
Particulars
Amount
Particulars
(LKR)
Joint venture A/c (Sales)
Amount
(LKR)
1,250
250
75
350
575
2,500
2,500
Illustration: 3
Smith and Sujith entered into a joint venture to purchase and sell goods and share profits and
losses in 3:2 ratio. Smith purchased goods for Lkr. 80000 and Sujith purchased for Lkr.
60000. Smith drew a bill of Lkr. 20000 on Sujith for three months and discounted the same
for Lkr. 18000. Smith spent Lkr. 2000 and Sujith spent Lkr. 1500 for expenses on the
venture. Smith sold goods for Lkr. 95000 and Sujith sold for Lkr.75000. the venturers were
entitled to a commission of 5% on their respective sales. On closing the venture, Smith took
over unsold goods for Lkr. 3000 and Sujith took over the balance for Lkr. 1000.
A.Ajanthan
99 | P a g e
Amount
Particulars
(LKR)
Amount
(LKR)
75,000
95,000
1,500 taken)
Bill receivable*
(Discount)
2,000
3,750
Commission A/c
4,750
12000
Sujith A/c
8000
3,000
1,000
.
20,000
174,000
174,000
Sujith A/c
Particulars
Amount
Particulars
(LKR)
Joint venture A/c (Sales)
(LKR)
Amount
20,000
60,000
1,500
3,750
A.Ajanthan
8,000
93,250
100 | P a g e
*in the case of joint venture, the amount of discount charged by the bank on discounting a bill
should be debited to the joint venture account in the books of the venturer who discounts it.
The corresponding credit should be given to bills receivable account.
Books of Sujith
Joint Venture Account
Particulars
Amount
Particulars
(LKR)
Amount
(LKR)
95,000
75,000
1,500 taken)
4,750
Commission A/c
3,750
1,000
3,000
8,000
12,000
20,000
174,000
174,000
Smith A/c
Particulars
Amount
Particulars
(LKR)
Amount
(LKR)
Bills payable
taken)
(Expenses)
3,000 Joint venture A/c (Discount)
80,000
2,000
2,000
4,750
12,000
A.Ajanthan
17,250
101 | P a g e
118,000
118,000
**in the case of joint venture, the discount charged by bank on bill discounted is an expense.
In the books of the venturer who accepted the bill, the amount of discount should be debited
in the joint venture account by giving corresponding credit to the venturer who discounted the
bill.
In such a case, the entry for discount would be:
Joint venture A/cDr
2000
Smiths A/cCr
2000
Illustration: 4
A of Ahmadabad and B of Bombay enter into a joint venture to consign 100 bales of cotton to
C of Ceylon to be sold by the latter on the joint risk of A and B, sharing in proportion of 3/5
and 2/5 respectively. A sends 60 bales at Rs.1, 3000 each, paying freight and other charges
amounting to Rs.900 B sends 40 bales at Rs.1, 250 each and pays for freight and other
charges Rs.800. All the bales are sold by the consignee for rs.1, 50,000 out of which he
deducts Rs.1, 600 for his expenses and his commission at 3 per cent. He remits a bank draft
for rs.70, 000 to A and the balance to B in a separate draft.
Give the necessary ledger account to record these transaction in the books of A and B.
As Ledger
Joint Venture A/c with B
Particulars
Amount
Particulars
(LKR)
Purchase A/c
Cash A/c (Expenses)
B A/c (goods)
B A/c (Expenses)
Amount
(LKR)
70,000
73,900
50,000
800
B A/c (Profit)
5,680
8,520
143,900
143,900
*It is never called as Bs Capital A/c since A and B are not partners.
A.Ajanthan
102 | P a g e
B A/c
Particulars
Amount
Particulars
Amount
(LKR)
Joint venture A/c (Cash received
(LKR)
from C)
(Goods Supplied)
50,000
800
5,680
Bank A/c
17,420
73,900
73,900
Working notes:
LKR
Total Sales By C
1, 50,000
Less: Expenses
1,600
Commission 3% of 1, 50,000
4,500
(6,100)
Balance
1, 43,900
(70,000)
*Amount received by B
73,900
Bs Ledger
Amount
Particulars
(LKR)
Purchases A/c
Cash A/c (Expenses)
A A/c (Goods Supplied)
A A/c (Expenses)
Amount
(LKR)
73,900
70,000
78,000
900
5680
A A/c
8520
14,200
143,900
143,900
Aji A/c
A.Ajanthan
103 | P a g e
Particulars
Amount
Particulars
Amount
(LKR)
(LKR)
Bank A/c
78,000
900
8,520
87,420
(c) When a separate set of books is kept for the Joint Venture
Normally the joint venture activities are undertaken by the person in addition to his normal
business activity. For example a building contractor (say A) who is independently handling a
big business is awarded a contract jointly with another builder (say B). These persons may
not like to disturb their accounting records for this specific activity and may decide to open a
separate set of books for the venture.
The co-venturers jointly open a bank account and contribute for the requirements of the
venture in money / non-money terms. The main accounts maintained under the system are:
Co-venturers Account
Joint Bank Account is a real account like the ordinary bank account. All the venturers
deposit a certain amount into the account. While the joint venture account shows the
profits or loss from the venture, the venturers accounts give the amount due to or due
by them.
Contribution of co-venturers
2)
3)
4)
A.Ajanthan
104 | P a g e
Debtors A/c..Dr
Sale on Credit
Creditors A/c...Dr
Joint Bank A/c.... Cr
Bills Payable A/c.... Cr
9)
10) Any Commission, salary, interest etc. payable to Joint venture A/c...Dr
any Co-Venturer
Co-venturers personal A/c....Cr
11) Part of the stock taken by Co-Venturer
Co-venturers
personal A/c ..Dr
Joint venture A/c.Cr
Co-venturers
personal A/c.......Dr
Joint venture A/c.Cr
Co-venturers
personal A/c......Dr
Joint Bank A/c.... Cr
A.Ajanthan
105 | P a g e
Note: Discount received should be debited to Creditors Account and credited to Joint
Venture Account. Similarly discount allowed and bad debts should be debited to Joint
Venture Account and credited to Debtors Account.
Illustration: 1
A and B enter into joint venture. A agrees to bring capital in cash. Accordingly a joint bank account is
opened by A for a sum of Lkr. 80000. B buys goods worth Lkr. 50000 as part of his share of capital.
Further goods worth Lkr. 118000 were purchased from c paying Lkr. 60000 and balance by a
promissory note signed by A and B.
The goods were sent to Calcutta for sale. Expenses totaling Lkr. 5000 were incurred in
sending the goods. Part goods were damaged and a sum of Lkr. 25000 was recovered from the
insurance company. The balance goods were sold for Lkr. 220000.
Give journal entries to record the above transactions. Also prepare joint venture account, joint
bank account and accounts of A and B assuming that the promissory note was duly honoured.
Solution:
Journal Entries
Description
LKR
LKR
80,000
A A/c..................................................Cr
80,000
50,000
B A/c........Cr
50,000
118,000
60,000
58,000
5,000
5,000
25,000
25,000
A.Ajanthan
106 | P a g e
goods damaged)
Joint Bank A/c..Dr
2,20,000
2,20,000
58,000
58,000
72,000
A A /c........................................................................................Cr
36,000
B A /c........................................................................................Cr
36,000
1,16,000
B A /c.................................................Dr
86,000
2,02,000
Amount
Particulars
Amount
(LKR)
(LKR)
B A/c (Goods)
50,000 Joint
C A/c (Goods)
118,000 Claim)
on
joint
Bank
A/c
(Insurance
25,000
220,000
venture
transferred to:
A A/c
36,000
B A/c
36,000
72,000
245,000
245,000
A A/c
Particulars
Amount
(LKR)
A.Ajanthan
Particulars
Amount
(LKR)
107 | P a g e
80,000
36,000
116,000
B A/c
Particulars
Amount
Particulars
(LKR)
Joint Bank A/c
Amount
(LKR)
50,000
36,000
86,000
Amount
Particulars
(LKR)
Amount
(LKR)
A A/c
80,000 C A/c
5,000
58000
3,25,000
60,000
A A/c
116,000
B A/c
86,000
3,25,000
Illustration: 2
Arun and Arvind entered into a joint venture to buy and sell goods, and to share profits and
losses in the ratio 2:1. They opened a joint bank account to which Arun contributed Lkr.
15000 and Arvind contributed Lkr. 10,000.
Arun andArvind purchased goods for Lkr. 24000 for the joint venture. Arun supplied
goods for Lkr. 6000, and Arvind paid for rent and sales expenses of Lkr. 3000. They sold
goods for Lkr. 35000. On closing the venture, the unsold goods were taken over by Arvind
for Lkr. 4000.
Show journal entries and prepare joint bank account, joint venture account and joint
venturers account.
Solution:
A.Ajanthan
108 | P a g e
Journal Entries
Description
LKR
LKR
25,000
Aruns A/c....................................................Cr
15,000
Arvinds A/c...Cr
10,000
24,000
24,000
6,000
Aruns A/c....................................................Cr
6,000
3,000
Arvinds A/c...Cr
3,000
35,000
35,000
4,000
4,000
6,000
Aruns A /c...............................................................................Cr
4,000
Arvinds A /c.............................................................................Cr
2,000
25,000
Arvinds A /c....................................Dr
11,000
36,000
A.Ajanthan
109 | P a g e
Particulars
Amount
Particulars
Amount
(LKR)
(LKR)
Joint
Bank
A/c
(Goods
purchased)
Profit
on
35,000
4,000
over)
24,000
joint
venture
transferred to:
Arun A/c
4,000
Arvind A/c
20,00
6,000
39,000
39,000
Amount
Particulars
Amount
(LKR)
(LKR)
Arun A/c
15,000 Joint
venture
A/c
(Goods
Arvind A/c
10,000 purchased)
24,000
25,000
11,000
60,000
Arun A/c
Particulars
Amount
Particulars
Amount
(LKR)
Joint Bank A/c
(LKR)
venture
A/c
15,000
(Goods
supplied)
6,000
4,000
25,000
25,000
Arvind A/c
Particulars
Amount
(LKR)
A.Ajanthan
Particulars
Amount
(LKR)
110 | P a g e
taken over)
4,000 contributed)
10,000
3,000
2,000
15,000
Illustration: 1
P and Q entered into a joint venture to construct a building for a joint stock company. The
contract price was settled at Lkr. 1,250,000 payable Lkr. 1,000,000 in cash and the balance in
A.Ajanthan
111 | P a g e
the form of fully paid equity shares of the company. They opened a joint bank account
wherein P deposited Lkr 300,000 and Q paid Lkr. 150,000. They agreed to share the profits
and losses in the ratio of 2:1.
P and Q bought materials for Lkr.150, 000 for cash and Lkr.500, 000 worth on credit
from R. They paid Lkr.225, 000 for wages, etc., and Lkr. 35,000 for other expenses. P and Q
supplied materials worth Lkr. 100,000 and Lkr. 40,000 respectively. Architects fees of
Lkr.5000 was paid by P. the contract was duly completed and the price received as stipulated.
R was paid by Lkr. 490,000 in full settlement. P agreed to take up the shares of the company
at a valuation of Lkr.220, 000. Q took over the remaining material at an agreed value of Lkr.
35000.
Prepare joint bank account, joint venture account and joint venturers account.
Solution:
Joint Venture Account
Particulars
Amount
Particulars
(LKR)
(LKR)
R ( Credit purchase)
P A/c (Materials)
100,000
Q A/c (Materials)
40,000
on
joint
1,000,000
250,000
10,000
35,000
5,000
Amount
30,000
venture
transferred to:
P A/c
140,000
Q A/c
70,000
210,000
1,295,000
1,295,000
Amount
(LKR)
A.Ajanthan
Particulars
Amount
(LKR)
112 | P a g e
P A/c
150,000
Q A/c
225,000
35,000
R (Creditors Paid)
490,000
325,000
225,000
1,450,000
1,450,000
P A/c
Particulars
Amount
Particulars
(LKR)
Amount
(LKR)
Equity shares
300,000
100,000
5,000
140,000
545,000
Q A/c
Particulars
Amount
Particulars
(LKR)
Joint venture A/c (Materials)
Joint Bank A/c
Amount
(LKR)
150,000
40,000
70,000
260,000
260,000
Amount
(LKR)
A.Ajanthan
Particulars
Amount
(LKR)
113 | P a g e
250,000 P A/c
220,000
30,000
250,000
250,000
Illustration: 2
Prabir and Mihir doing business separately as building contractors undertake jointly to build a
building for a newly started public company for a contract price of Lkr.10, 00,000 payable as
to Lkr. 8, 00,000 by installments in cash and Lkr. 2, 00, 000 fully paid equally shares of the
new company. A bank account is opened in their joint name, Prabir paying Lkr. 2, 50,000 and
Mihir Lkr. 1, 50,000. They are to share profit or loss in the proportion of 2:1 respectively.
Their transactions were as follows:
LKR
Paid wages
300,000
Bought materials
700,000
50,000
40,000
20,000
The contract was completed and the price duly received. The joint venture was closed
by Prabir taking up all the equity shares of thee company at an agreed valuation of Lkr. 1,
60,000 and Mihir taking up the stock of materials at an agreed valuation of Lkr. 30,000.
Prepare the joint venture account showing the profit or loss, joint bank a/c and the
accounts of Prabir and Mihir showing the final distribution of cash.
Solution:
Joint Venture Account
Particulars
Amount
Particulars
Amount
(LKR)
Joint Bank A/c:
Materials
7,00,000
Wages
3,00,000
8,00,000
Shares A/c
2,00,000
30,000
Loss to:
Materials
50,000
Architects fees
20,000
A.Ajanthan
Prabir A/c:
(LKR)
70,000
Prabir A/c
80,000
Mihir
40,000
A/c
1,20,000
40,000
114 | P a g e
40,000
1,150,000
1,150,000
Amount
Particulars
Amount
(LKR)
(LKR)
Prabir A/c
Mihir A/c
10,00,000
80,000
120,000
1,200,000
1,200,000
Co-venturers A/c
Joint
venture
Prabir
Mihir
Prabir
Mihir
LKR
LKR
LKR
LKR
2,50,000
1,50,000
70,000
40,000
320,000
190,000
A/c
(loss)
80,000
30,000
1,60,000
80,000
1,20,000
320,000
1,90,000
Shares A/c
Amount
Amount
(LKR)
(LKR)
A.Ajanthan
1,60,000
40,000
200,000
115 | P a g e
Illustration: 3
Dilip and Raj are doing business separately as engineering contractors. They undertake
jointly to build and install new machinery for a company for a contract price of Lkr. 1,
34,000. Lkr. 84,000 payable in installments in cash and the balance as fully paid shares in the
new company. A bank account is opened in joint, Dilip paying Lkr. 45000 and Raj Lkr.
20,000. They are to share profits and losses in the proportion of 3/5 and 2/5 respectively.
Their transactions were as follows:
LKR
Amount advanced to suppliers for supply of materials
52,000
89,000
35,500
Paid wages
36,000
2,500
9,250
3,250
3,500
Amount
Particulars
(LKR)
Amount
(LKR)
Dilip A/c
52,000
Raj A/c
35,500
36,000
2,500
A.Ajanthan
fees)
3,250
Dilip A/c
4,400
116 | P a g e
Raj A/c
15,350
1,49,000
1,49,000
Amount
Particulars
Amount
(LKR)
Suppliers A/c (Materials)
(LKR)
1,500
received)
Materials
36,000
Wages
2,500
consultant fees
3,250
84,000
Shares A/c
50,000
2,750
Loss to:
Dilip A/c (Materials)
9,250
Dilip A/c
2850
3,000
Raj A/c
1900
4,750
143,000
143,000
Co-venturers A/c
Joint
venture
Dilip
Raj
Dilip
Raj
LKR
LKR
LKR
LKR
45,000
20,000
A/c
(Loss)
2,750
9 ,250
47,000
4,400
15,350
54,250
20,000
54,250
20,000
Shares A/c
LKR
LKR
47,000
A.Ajanthan
3,000
50,000
117 | P a g e
Illustration: 4
A and B entered into a joint Venture to construct a building for a newly started Tools India
Ltd. The Contract price was fixed at Lkr.20 Lakhs to be settled as follows:
Lkr.8 Lakhs in cash
Lkr. 2 Lakhs in fully paid preference shares.
A joint bank account is opened in which A and B deposited Lkr.2, 50,000 and Lkr.1, 50,000
respectively. The profit or loss is to be shared in the ratio of 2: 1 after providing for interest
on Capital at 10%.
The details of their transaction are:
Plant Purchased
2, 00,000
Wages Paid
1, 00,000
Material Purchased
7, 00,000
50,000
40,000
20,000
The contract was completed and the price was received as stipulated. Half of the plant was
taken over by A for Lkr.80, 000 and half was sold for Lkr.1, 10,000.
Joint Venture Account was closed by A taking up all the shares at an agreed valuation of
Lkr.1, 60,000 and B taking up the stock of material at an agreed valuation of Lkr.30, 000.
Separate books were maintained for the Joint Venture. Give ledger accounts.
Solution:
Joint Venture Account
Particulars
Amount
Particulars
Amount
(LKR)
(LKR)
8,00,000
2,00,000
A A/c (Stock)
B A/c (Stock)
40,000 sold)
A A/c (Interest)
25,000
B A/c (Interest)
15,000
40,000
A.Ajanthan
80,000
1,10,000
30,000
118 | P a g e
Profit
on
joint
venture
transferred to:
A A/c
20,000
B A/c
10,000
30,000
12,20,000
12,20,000
Amount
Particulars
Amount
(LKR)
(LKR)
A A/c
2,00,000
B A/c
1,00,000
Joint
venture
A/c
(Contract
7,00,000
Price)
1,25,000
1,85,000
1,310,000
1,310,000
A A/c
Particulars
Amount
Particulars
(LKR)
Joint venture A/c (Plant taken
(LKR)
over)
Amount
Shares A/c
1,25,000 fees)
2,50,000
50,000
20,000
25,000
20,000
3,65,000
3,65,000
B A/c
Particulars
Amount
Particulars
(LKR)
Joint venture A/c (Materials)
Joint Bank A/c
(LKR)
A.Ajanthan
Amount
1,50,000
40,000
15,000
119 | P a g e
10,000
2,15,000
In the books of A
Joint Venture Investment A/c
Particulars
Amount
Particulars
Amount
(LKR)
(LKR)
1,25,000
20,000 Shares
1,60,000
Stock
Interest
25,000
Profit
20,000
Cash (capital)
3,65,000
80,000
3,65,000
In the books of B
Joint Venture Investment A/c
Particulars
Amount
Particulars
(LKR)
Cash A/c (Capital)
(LKR)
Stock
40,000 Bank
Interest
15,000
Profit
10,000
Amount
30,000
1,85,000
2,15,000
2,15,000
Notes:
Joint Venture transactions are recorded in a separate set of books meant for Joint
Venture and not in the books of either of the co-venturers.
A.Ajanthan
120 | P a g e
Shares Account
Dr.
Dr.
Co-Venturers Account
Dr.
Shares Account
(4) (a) For profit on sale
Shares Account
Dr.
Dr.
Shares Account
Illustration: 1
A and B enter into a joint venture for guaranteeing the subscription at par of 1, 00,000 shares
of Rs.20 each of a joint stock company. They agree to share profits and losses in the ratio of
2: 3. The terms with the company are: 4% commission in cash and 6,000 fully paid up
shares of the company. The public take up 88,000 of the shares and the balance shares of the
A.Ajanthan
121 | P a g e
guaranteed issue are taken up by A and B who provide cash equally. The commission in cash
is taken by the partners in the ratio 4: 5. The entire share holding of the Joint Venture is then
sold through brokers: 25% at a price of Rs.9; 50% at a price of Rs.8.75; 15% at a price of
Rs.8.0 and the remaining 10% is taken over by A and B equally at Rs. 8 per share.
Prepare a joint venture account and the separate accounts of A and B showing the
adjustment of final balance between A and B. Ignore interest and income tax.
Solution:
Joint Venture Account
Particulars
Amount
Particulars
(LKR)
Amount
(LKR)
45,000
A A/c
60,000
B A/c
48,150
105,000
105,000
Amount
Particulars
(LKR)
Amount
(LKR)
A A/c
2,00,000
B A/c
60,000 A A/c
20,000
45,000 B A/c
25,000
Shares A/c:
64,900
25%
75,950
50%
78,750
15%
21,600
3,05,850
30,5,850
A A/c
Particulars
Amount
Particulars
(LKR)
Joint
Bank
A/c
(Cash
Shares A/c
A.Ajanthan
(LKR)
commission)
Amount
60,000
32,100
7,200
122 | P a g e
Joint
Bank
A/c
(Final
settlement)
64,900
92,100
92,100
B A/c
Particulars
Amount
Particulars
(LKR)
Joint
Bank
A/c
(Cash
purchased)
Joint
(LKR)
Joint Bank A/c (Capital)
Shares A/c
Amount
60,000
48,150
7,200
Bank
A/c
(Final
settlement)
75,950
1,08,150
1,08,150
Shares A/c
Particulars
Amount
Particulars
(LKR)
Joint
Bank
A/c
(Shares
commission)
Joint venture A/c (Commission)
Joint
Bank
settlement)
A/c
Amount
(LKR)
40,500
78,750
21,600
A A/c (5%)
7,200
7,200
(Final
24,750
108,150
(D) When joint venture transactions are recorded through the Memorandum Joint
Venture Account
Under this method, a co-venturer records only those transactions in which he himself
features, for example, goods given for the venture, expenses incurred for the venture, sales
made for the venture, goods taken over from the venture etc. the recording mechanism
involves making only one account called Joint Venture With Co-Venturer Investment
Account. Hence, A will prepare Joint Venture with B Investment Account and B will
prepare Joint Venture with A Investment Account. The account is personal account and is
A.Ajanthan
123 | P a g e
used to effect settlement with the co-venturer. (Hence it will not disclose the profit or loss of
the venture) All transactions are recorded from the perspective as if the co-venturer is the
debtor of the business. The profit or loss of the venture is computed in an account which is
not part of the double entry mechanism and hence is appropriately termed as Memorandum
Joint Venture Account (pattern of profit and loss account). The term Memorandum is
prefixed as this account does not form part of the double entry system. The memorandum
joint venture account is prepared exactly like a joint venture account prepared under the
method B and this method is an alternative method of (B) method.
In the above case, the following are the scheme of entries to be given in the books of
A;
1)
2)
3)
4)
5)
Bank A/c.. Dr
Joint venture with B A/c..Dr
Bills Receivable A/c...Cr
6)
Bank A/c.. Dr
Joint venture with B A/c....Cr
7)
8)
Purchase A/c.Dr
Joint venture with B A/c....Cr
9)
A.Ajanthan
124 | P a g e
Bank A/c... Dr
Joint venture with B A/c...Cr
The same set of entries is to be followed in the books of B for preparing joint venture with A
Illustration: 1
On January 1st, 2005, Anu and Sunu entered into a joint venture to deal in second-hand
bicycles for a period of twelve months and to share profits and losses equally.
Anu purchased cycles FOR Lkr. 30,000 and Sunu purchased for Lkr. 35,000.
Repairing and other charges paid by Anu was Lkr. 6000 and that by Sunu was Lkr. 4,000. A
nu sold cycles for Lkr. 40,000 and Sunu sold for Lkr. 45,000. On closing the books on June
30, the unsold cycles of the purchase price of Lkr. 7,500 were taken over by Anu at cost plus
10%.
Prepare memorandum joint venture account. Also give journal entries in the books of
Anu and Sunu, and show joint venture with Sunu account in the books of Anu and joint
venture with Anu account in the books off Sunu assuming that the final settlement of
accounts was made between Anu and Sunu.
Solution:
Memorandum Joint Venture Account
Particulars
Amount
Particulars
(LKR)
Anu A/c :
Cost of cycles
Repairing
Repairing
(LKR)
Anu A/c:
30,000
6,000
Sales price
Sales price
35,000
4,000
40,000
Sunu A/c :
Cost of cycles
Amount
45,000
Anu A/c:
39,000
8250
Profits:
Anu A/c
9,125
Sunu A/c
9,125
A.Ajanthan
18,250
125 | P a g e
93,250
93,250
Books of Anu
Journal Entries
Debit
(LKR)
Descriptions
Joint venture with Sunu A/c..Dr
Credit
(LKR)
30,000
Bank A/c..... Cr
30,000
6,000
Bank A/c..... Cr
6,000
40,000
40,000
8,250
8,250
A/c...Dr
9,125
9,125
3,125
Bank A/c..... Cr
3,125
Amount
Particulars
(LKR)
Bank A/c
(Cost of goods bought)
(LKR)
Bank A/c (sales)
40,000
Bank A/c
6,000
9,125
A.Ajanthan
Amount
8,250
126 | P a g e
Bank A/c ?
3,125
48,250
48,250
Books of Sunu
Journal Entries
Descriptions
Joint venture with Anu A/c...Dr
Debit
Credit
(LKR)
(LKR)
35,000
Bank A/c..... Cr
35,000
4,000
Bank A/c..... Cr
4,000
45,000
45,000
A/c..Dr
9,125
9,125
3,125
Bank A/c..... Cr
3,125
Amount
Particulars
(LKR)
Bank A/c
(Cost of goods bought)
(LKR)
Bank A/c (sales)
45,000
Bank A/c
(Final settlement)
4,000
9,125
A.Ajanthan
Amount
3,125
127 | P a g e
48,250
48,250
Illustration: 2
Ravi and Suresh entered into a Joint Venture for purchase and sale of electronic goods,
sharing profit& loss in this ratio of 3:2. They also agreed to receive 5% commission on their
individual sales and the following information was extracted from the records.
July 1. 2012: Ravi purchased goods worth Lkr.1, 90,000 financed to the extent of 90% out of
his funds and balance by load from his uncle Shyam.
Aug. 1 2012: Ravi sent goods costing Lkr.1, 70,000 to Suresh and paid Lkr.1, 410 as freight.
Suresh paid Lkr.13, 410 to Ravi.
Oct. 1 2012: Suresh sold all the goods sent to him. Ravi paid the loan takes from his uncle
including interest of Lkr.350.
All sales by either party were made at as uniform profit of 40% after cost. On Nov.
30, 2012, they decided to close the venture by transforming the balance of goods unsold lying
with Ravi at a cost of Lkr.9, 000 to a wholesale dealer. They further disclosed that goods
worth Lkr. 4,000 were taken personally by Ravi at an agreed price of Lkr. 5,000.
You are required to prepare the Memorandum Joint Venture Account, Joint Venture
with Ravi in the books of Suresh and Joint Venture with Suresh in the books of Ravi.
Solution:
Memorandum Joint Venture Account
Particulars
Amount
Particulars
(LKR)
Ravi A/c:
Purchase
Purchase(Loan)
Interest on loan
(LKR)
Suresh A/c:
1,71,000
19,000
Sales (17000*140%)
Sales (190000 170000 9000
1410
350
- 4000) 7000*140%
1,760
Stock taken
Commission
Ravi A/c:
Ravi A/c:
9,800
Ravi A/c:
Suresh A/c:
238,000
Ravi A/c:
Freight
Amount
5,000
9,000
Commission
A.Ajanthan
128 | P a g e
490
Profit on Venture:
Ravi - ( 3 / 5 )
34,590
Suresh - ( 2 / 5 )
23,060
57,650
261,8 00
261,800
Amount
Particulars
Amount
(LKR)
Bank A/c
Cash A/c
Interest on loan
13,410
Bank A/c
Freight
(LKR)
5,000
Commission
Share of Profit
leader
9,000
9,800
189,630
34,590
226,840
226,840
Amount
Particulars
(LKR)
Cash A/c
Commission
11.900
Share of Profit
23.060
Amount
(LKR)
238,000
189.630
226,840
226,840
Illustration: 3
M and N decided to work in partnership with the following scheme, agreeing to share profits
as under:
M th share
A.Ajanthan
129 | P a g e
Nth share
They guaranteed the subscription at par of 10, 00,000 shares of Lkr.1 each in U. Ltd. And to
pay all expenses up to allotment in consideration of U. Ltd. issuing to them 50,000 other
shares of Lkr.1 each fully paid together with a commission @ 5% in cash which will be taken
by M and N in 3: 2.
M and N introduced cash as follows:
M Stamp Charges, etc., 4,000
Advertising Charges 3,000
Printing Charges 3,000
N Rent 2,000
Solicitors Charges 3,000
Application fell short of the 10, 00,000 shares by 30,000 shares and N introduced Lkr.30, 000
for the purchase of those shares. The guarantee having been fulfilled, U. Ltd. handed over to
the venturers 50,000 shares and also paid the commission in cash. All their holdings were
subsequently sold by the venturer N receiving Lkr. 18,000 and M Lkr. 50,000.
Write-up necessary accounts in the books of both the parties on the presumption that
Memorandum Joint Venture Account is opened for the purpose.
Solution:
Memorandum Joint Venture Account
Particulars
Amount
Particulars
Amount
(LKR)
N A/c (Cost of shares)
50,000
18,000
M A/c:
Stamp Charges etc,
4,000
3,000
Commission
Commission
2,000
Solicitors Charges
3,000
30,000
N A/c:
Rent
68,000
M A/c (3/4)
(LKR)
20,000
50,000
5,000
Profit on venture:
M A/c (3/4)
54,750
N A/c (1/4)
18,250
73,000
A.Ajanthan
130 | P a g e
118,000
118,000
In the books of M
Joint Venture with N
Particulars
Amount
Particulars
Amount
(LKR)
Bank A/c
(Stamp, Adv. and Printing
(LKR)
Bank A/c : Commission
30,000
50,000
Charges)
Share of Profit
54,750
15,250
80,000
80,000
In the books of N
Joint Venture with M
Particulars
Amount
Particulars
Amount
(LKR)
Bank A/c :
(Cost of Shares)
Bank A/c:
30,000 ( Commission)
Bank A/c :
(Rent and Solicitors Charges)
Share of Profit
(LKR)
20,000
Bank A/c:
5,000 ( Sale Proceeds)
18,000
15,250
53,250
Illustration: 4
A of Delhi and B of Bangalore entered into a Joint Venture for purchases and sales of one lot
of Mopeds. The cost of each Moped was Rs.3, 000 and the fixed retail selling price Rs.3, 000.
The following were the recorded transactions:
2002
Jan. 1
A.Ajanthan
131 | P a g e
A raised a loan from Canara Bank for Rs.50, 000@ 18% p.a. interest, repayable with
interest on1.3.2002.
Jan.7
Feb.1
B raised a loan of Rs.1, 50,000 from Union Bank repayable with interest at 18% p.a.
on 1.3.2002.
Feb. 26
March. 1
Accounts settled between the venturers and loans repaid. Profit being appropriated equally.
You are required to show:
(1) The Memorandum Joint Venture Account.
(2) Joint Venture with B Account in As Books.
(3) Joint Venture with A Account in Bs Books.
(You are to assume that each venturer recorded only such transactions concluded by him.)
Solution:
Memorandum Joint Venture Account
Particulars
Amount
Particulars
(LKR)
A A/c:
Cost of Mopeds
(LKR)
A A/c
2,880 B A/c
A.Ajanthan
Amount
90,000
360,000
132 | P a g e
Selling Expenses
5,000
B A/c:
Clearing Charges
720
2,550
Sundry Expenses
(Telegraphic transfer Charges)
Selling Expenses
50
20,000
Net Profit
A
28,800
28,800
57,600
450,000
450,000
In the books of M
Joint Venture with N
Particulars
Amount
Particulars
Amount
(LKR)
Bank A/c
(Part payment of Cost)
Bank A/c
(Forwarding Charges)
22,500
150,000
67,500
Bank A/c
(Balance cost of purchase)
(LKR)
158,180
288,000
Bank A/c
(Selling expenses)
5,000
Bank A/c
(Interest on Bank Loan)
1,500
28,800
398,180
398,180
In the books of N
Joint Venture with M
Particulars
A.Ajanthan
Amount
Particulars
Amount
133 | P a g e
(LKR)
Bank A/c :
(LKR)
Bank A/c:
(Clearing Charges)
90,000
Bank A/c:
150,050 (Sale proceeds 60 Mopeds)
270,000
20,000
2,250
28,800
158,180
360,000
360,000
A.Ajanthan
134 | P a g e
Illustration:
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 Lkr. 800
per bag and paid freight Lkr.8, 000 and insurance Lkr.2, 000. Sahu sent 400 bags at Lkr.
1,000 per bag. He paid Lkr.2, 500 as freight, Insurance Lkr.8, 000 and sundry expenses as
Lkr.500. Sahani paid Lkr. 50,000 as advance to Sahu. They appointed Sandeep as agent for
sale of grains. Sandeep sold all bags at Lkr.1, 200 per bag. He deducted Lkr.21, 000 as his
expenses and commission of 5% on sales. He remitted Lkr. 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 Sahus A/c and Sandeeps A/c in the books of Mr. Sahani.
Solution:
Books of Sahani
Joint Venture Account
Particulars
Amount
Particulars
Amount
(LKR)
Food grains A/c (400*800)
(LKR)
9,60,000
10,000
Sahu A/c
food grains(400*1000)
4,00,000
11,000
21,000
48,000
90,000
60,000
960,000
960,000
Amount
Particulars
(LKR)
Bank A/c - advance
Amount
(LKR)
400,000
11,000
60,000
A.Ajanthan
135 | P a g e
471,000
471,000
Amount
Particulars
Amount
(LKR)
(LKR)
21,000
48,000
600,000
291,000
960,000
Illustration: 1
Daga of Kolkata sent to Lodha of Kanpur goods costing Lkr. 40,000 on consignment at a
commission of 5% on gross sales. The packaging and forwarding charges incurred by
consignor amounted to Lkr. 4,000. The consignee paid freight and carriage of Lkr. 1,000 at
Kanpur. Three-fourth of the goods were sold for Lkr. 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 Lkr. 20,000 and
A.Ajanthan
136 | P a g e
Lodha sold out all the goods in his hand for Lkr. 50,000 (gross). Daga paid expenses Lkr.
2,000 and Lodha Lkr. 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 Daga
Consignment to Lodha Account
Particulars
Amount
Particulars
(LKR)
Goods Sent on Consignment A/c
48,000
Lodhas A/c:
(Stock transferred on
conversion to JV)
1,000
Commission
2,400
P & L A/c
(LKR)
Bank A/c
Amount
11,250
11,850
59,250
59,250
Lodhas Account
Particulars
Amount
Particulars
(LKR)
Consignment A/c - sales
Amount
(LKR)
1,000
2,400
44,600
48,000
48,000
Amount
Particulars
(LKR)
(LKR)
20,000
2,000
A.Ajanthan
Amount
42,280
137 | P a g e
9,030
42,280
42,280
Books of Ladha
Dagas Account (as consignor)
Particulars
Amount
Particulars
(LKR)
(LKR)
Commission A/c
2,400
Amount
48,000
44,600
48,000
48,000
Amount
Particulars
(LKR)
(LKR)
6,020
Balance c/d
Amount
50,000
42,280
50,000
50,000
Amount
Particulars
(LKR)
(LKR)
20,000
2,000
1,700
Amount
50,000
Net Profit :
Daga 3/5th Share
9,030
6,020
15,050
50,000
A.Ajanthan
50,000
138 | P a g e
Illustration: 2
Satish and Sunit made a JV to underwrite the subscription at par of the equity share capital of
Soft Systems Ltd. consisting of 100,000 shares of Lkr.10 each. They agreed to pay all
expenses up to the allotment of shares. They agreed to share profits or losses in the ratio of
3:2. The consideration in return for this underwriting was allotment of 12,000 other shares of
Lkr. 10 each at par to be issued to them fully paid. Satish provided for Lkr.12,000 registration
fees, Lkr.11,000 advertisement, Lkr.7,500 for printing & distributing prospectus and
Lkr.2,000 for printing & stationery. Sunit paid Lkr.3, 000 office rent, Lkr. 13,750 as legal
charges, and Lkr.9, 000 salaries of clerks. The issue fell short by 15,000 shares. Satish took
these over on joint A/c by paying for the same in full. He sold the entire holding at Lkr.12
(net). Sunit sold the 12,000 shares allotted as consideration at the same price.
Prepare necessary ledger accounts in the books of both parties.
Solution:
Books of Satish
Joint Venture Account
Particulars
Amount
Particulars
(LKR)
Bank A/c - expenses :
Amount
(LKR)
Registration Fees
Prospectus Printing
180,000
144,000
3,000
13,750
9,000
150,000
115,750
324,000
324,000
Sunit Account
Particulars
A.Ajanthan
Amount
Particulars
Amount
139 | P a g e
(LKR)
Joint Venture A/c - sales
(LKR)
25,750
46,300
71,950
144,000
144,000
Books of Sunit
Satish Account
Particulars
Amount
Particulars
(LKR)
Amount
(LKR)
32,500
150,000
69,450
251,950
Illustration: 3
On the 1st January of 2002 Singh of Amritraj, a manufacturer of sports goods sent a
Consignment of 100 cricket bats to Bose of Calcutta to be sold on consignment basis at a
commission of 20%, such commission to cover the consignees expenses but not the freight
charges of the goods to Calcutta. The cost of each bat is Lkr.100 but is invoiced to Bose at
Lkr.150 each. A case containing 10 cricket bats was lost against which the consignor lodged
a claim and collected from the insurance company Lkr.800. The consignee paid Lkr.540 as
freight charges and spent a further sum of Lkr.400 as sales expenses. Consignors expenses
amounted to Lkr.500. The consignee accepted a bill of exchange drawn by Singh for 3
months (Beginning with the date of dispatch) for Lkr.10, 000 which bill was discounted at
6% p.a. with the bankers. Bose sold 75 bats at Lkr.200 each and on 30th June 2002 remitted
the balance due from him. After making up accounts on 30th June 2002 the parties decide to
convert their relationship to that of a Joint Venture on the terms that the cost of a bat would
be taken at Lkr.350, Singh to get an interest of 8% p.a. on his investment and Bose to get a
commission of 10% on sales. Venturers are to share profit and losses equally.
Prepare the necessary accounts in the books of Singh and indicate the adjustment
entry required on conversion of the terms of dispatch.
A.Ajanthan
140 | P a g e
Solution:
Consignment to Calcutta Account
Particulars
Amount
Particulars
Amount
(LKR)
Goods Sent on Consignment A/c
(LKR)
15,000
540
(Loading)
5,000
800
250
P & L A/c
2,421
23,471
23,471
Amount
Particulars
Amount
(LKR)
Goods Sent on Consignment A/c
15,000
Expenses :
Singh A/c
500
Boss A/c
940
(LKR)
Sales A/c
15,000
Insurance claim
800
2,415
Interest :
Bose 162
325
Investments 8% on Rs.15,000
for 6 months
Commission (Bose)
600
1,500
18,540
18,540
Working Notes: 1
(1) It is assumed that freight was paid only on 90 bats.
(2) Valuation of closing Stock at Invoice Price
LKR
15 bats @ Rs. 150 each
2,250
90
81
2421
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1,000
50
1050
(800)
250
Working Notes: 2
(1) Interest has been allowed on investment in goods only; the question of expenses and of
claim received cancelling out one another.
(2) For the purpose of Joint Venture no stock reserve is required.
(3) Adjustment is required as under:
Amount already received by Bose (Commission)
3,000
1,500
Expenses
400
1,900
(162)
(1738)
1,262
1,262
1,262
(Amount due to Bose under the Joint Venture Arrangement being Rs.3, 000 whereas he
previously received Rs.3, 000 amounts now adjusted)
(2) Profit and Loss Account Dr.
375
375
(Our share of the unrealized profit on unsold stock 50% of Rs.3, 000)
Summary
A joint venture is a contractual arrangement between two or more parties to undertake an
economic activity, which is subject to joint control, i.e., agreed sharing of power to govern
the financial and operating policies of an economic activity, so as to obtain benefits from it. A
joint venture arises because of the limitations of a person due to constraint of available time,
money expertise to execute a job etc. Despite broad similarities between joint venture and
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partnership, the two types of business differ considerably. A joint venture can also be
distinguished from the consignment although both forms of business arise because of inherent
limitations of a person to undertake a business effectively on his own. It is necessary to
maintain proper accounts of all transactions of joint venture so that correct profit or loss on
joint venture may be ascertained. The main methods of recording joint venture transactions
are by creating an independent set of books of the joint venture which do not form part of the
accounting system of an co-venturer, to record all the transactions of the joint venture,
whether, entered by himself or by his co-venturer and to record only those transactions of the
joint venture in which he himself features.
Keywords
Joint Venture: When two or more persons joint together to carry out a specific business and
share the profits or losses on predetermined basis, it is known as a joint venture.
Co-venturer Account: It is a personal account and debited with sales made by the coventurer or goods taken by him and is credited with assets given by him for the venture and
expenses paid by him.
Memorandum Joint Venture Account: The profit or loss of the venture is computed in an
account which is not part of the double entry mechanism and is termed as Memorandum Joint
Venture Account.
Self Evaluation Questions:
Theoretical questions:
1. Define a "joint venture". What are the different methods of recording transactions
relating to joint venture?
2. Differentiate between "joint venture" and "consignment".
3. Distinguish joint venture from consignment and partnership.
4. What is memorandum joint venture account? How is it prepared?
5. Give the various journal entries to be passed in case where separate set of books are
maintained for recording joint venture transactions.
6. Give the various journal entries to be passed in case where no separate set of books
are maintained for recording joint venture transactions.
Objective:
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(iv) In case of memorandum method when there are three co-venturers, each co-venturer
opens in its books for the venture:
(a) One account;
(b) Two accounts;
(c) Three accounts.
(v) When a venturer recording the transactions brings goods to the joint venture from his own
stock, the amount is credited to:
(a) Joint venture account;
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3) A and B completed a venture and earned $30,000. They shared profits in the ratio of 2:1.
What journal entry will be passed when:
(a). There is a separate set of books.
(b). Records are kept by A only
(c). Records are kept by B only.
(d) There is a memorandum, method of recording transactions.
A, B and C enter into a joint venture to share profits in the ratio of 3:2:1, respectively.
A, B and C contributed Lkr.3, 000, Lkr. 4,000 and Lkr. 5,000 respectively, and were
deposited in a joint bank account. They purchased goods worth Lkr. 10,000 from D
and made the payment by cheque. They incurred Lkr. 250 as expenses on the goods
purchased. A part of the goods was sold for Lkr. 9,000 and the amount was received
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in cash. The remaining goods were sold to E on credit for Lkr. 6,000, who accepted a
bill, which was discounted for Lkr. 5,900. A was allowed commission at 5 % on sales
for his extra services.
Prepare joint venture account, joint bank account and personal accounts. [Assume that
separate set of books is maintained for joint venture].
Ans: profit Lkr. 3,900; amount due to A Lkr.5, 700; amount due to B Lkr.5, 300;
amount due to C Lkr.5, 650]
2.
Sunil, Balu and Giri entered into a contract with Arvind ltd. for the construction of a
building at a cost Lkr. 250,000 payable Lkr. 200, 000 in cash and Lkr. 50,000 in
debentures. They shared profits and losses equally. Sunil, Balu and Giri contributed
Lkr. 30,000, Lkr. 37,500 and Lkr. 20,000, respectively. All these amounts were
deposited in a joint bank account. Sunil paid Lkr. 3,500 to the architect. Balu
purchased concrete mixture for Lkr. 12,500 and Giri bought a motor truck for Lkr.
10,000 for joint venture work. They purchased plant for Lkr.12, 000, materials for
Lkr.120, 000 in cash, and paid Lkr.97, 500 as wages. After construction of the
building, Sunil took over the remaining material for Lkr.7, 000 and balu took over
mixture or Lkr. 6,000, Giri took over the motor truck for Lkr. 4,000. The plant was
sold Lkr. 3,000.when full price was received from the contractor, Sunil took over the
debenture for Lkr. 40,000.
Prepare joint venture account, joint bank account and co-ventures personal
accounts. [Assume that separate set of books is maintained for joint venture].
Ans: profit Lkr. 4500; Sunil will bring in Lkr. 12000 and Balu will get Lkr. 45500
and Giri Lkr. 27500; joint bank total Lkr. 302,500]
3.
X and y entered into a joint venture to buy and sell goods and to share profits and
losses equally. They opened a joint bank account to which x contributed Lkr. 25000
and y contributed Lkr.15000. x and y purchased goods for Lkr.40000for the venture.
X supplied goods for Lkr. 7500 and paid rent for the venture Lkr. 1500. They sold
goods for Lkr. 60000. The expenses on advertisement, salesmen salaries, etc.,
amounted to Lkr. 4000. On closing the venture, the unsold goods were taken over by
y for Lkr. 3000.
Show journal entries; prepare joint bank account, joint venture account and the
ventures account. [Assume that separate set of books is maintained for joint
venture].
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[Ans: Profit Lkr. 10000; Amount due to X Lkr.39, 000; Amount due to Y Lkr.17,
000]
4.
5.
Anu and Binu doing business separately as building contractors undertake jointly to
construct a building for a newly set up company with Lkr. 50000, payable Lkr. 40000
in cash and Lkr. 10000 in fully paid shares of the company. A joint bank account is
opened in their names. Anu payed in Lkr. 12500 and Binu Lkr. 7500. They were to
share profits and losses in the proportion of 2:1.their transactions were as follows:
LKR
Paid wages
15000
Bought material
35000
2500
2000
1000
The contract was completed and the price (cash and shares) duly received. The joint
venture was closed by Anu taking up all the shares of the company at an agreed value
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of Lkr. 8000 and Binu taking up the stock of materials at an agreed value of Lkr.
1500.
Show the necessary ledger accounts. [Assume that separate set of books is
maintained for joint venture].
[Ans: Loss Lkr. 6,000; payments to Anu Lkr.4, 000 and Binu Lkr.6, 000]
6.
A and B enter into a joint venture to purchase and develop certain lands as Industrial
Estate. For that purpose, a Joint bank Account was opened wherein A deposited
Lkr.60, 000 and B deposited Rs.40,000. A piece of land measuring 18,000 sq. meters
was purchased at Rs.3 per sq. meter. The following expenses were paid from the Joint
Bank Account :
Lkr
Cost of earth filling to level land
14,000
5,000
Municipal Taxes
2,000
3,000
1,000
6,000
General expenses
2,000
2,000
It was decided to sell land in smaller plots of 500 sq. meters each. One sixth of the
area was left over for public lands. 10 plots were sold at Rs.20 per sq. meter through the
brokers who were paid 2% brokerage on the sale price of land. A retained one plot for his
personal use at an agreed price of Rs.3, 000. The remaining plots were sold at a consolidated
price of Rs.76, 200 directly. A and B shared profits (or losses) of the Joint Ventures in the
proportion of the amounts invested by them. All transactions have been effected through the
bank.
Prepare joint venture account, joint bank account and accounts of A and B assuming that all
accounts are settled.
[Ans: Profit Lkr. 55000; payments to A Lkr.88000 and B Lkr.62000]
7.
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i.
ii.
iii.
iv.
8.
Arun, Ashok and Gopal entered into a joint venture agreement. According to the
terms of agreement, Arun is to supervise the overall working of venture and a separate
set of books is kept for record keeping. Arun is entitled to charge 5% commission on
sales. Ashok and Gopal contributed Lkr. 6,400 each. Goods are purchased for Lkr.
14,400 and from Aruns own stock for Lkr. 4,800. An expenditure of Lkr.1, 460 is
incurred on account of joint venture.
All the goods are sold away for Lkr. 24,400. The accounts of venture are settled and
accounts closed.
Journalize the above transactions, and show the Joint Venture Account and other
ledger accounts in the joint venture books.
[Ans: Profit Lkr. 2,520; Amount paid to Arun, Ashok and Gopal Lkr.6, 860, Lkr.7,
240 and Lkr.7, 240 respectively]
9.
X and Y undertake jointly to build for a newly stated joint stock company for a
contract price of Rs.1,000,000 payable as to Rs.80,000 by installments in cash and
Rs.20,000 in fully paid shares of the new company. A banking account is opened in
the joint name, X contributing Rs. 25,000 and Y Rs, 15,000. They have to share
profits and losses in the proportion of 2/3 and 1/3 respectively. Their transactions
were as follows:
Paid wages
Rs.30, 000
Bought materials
Rs.3, 000
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The contract was completed and the price dully received: Zs dues were dully paid off. The
joint venture was closed by X taking up all the shares of the company at an agreed valuation
of Rs.16,000 and Y taking up unused stock of materials for Rs.3,000 as mutually valued.
Prepare the necessary accounts to record the above transactions.
[Ans: Profit Lkr. 2,520; Amount paid to Arun, Ashok and Gopal Lkr.6, 860, Lkr.7,
240 and Lkr.7, 240 respectively]
10. Rajeev and Ashok entered into a joint venture as details in land and opened a Joint
Banking Account with Lkr. 60,000 towards which Rajeev contributed Lkr.
40,000.they agree to share profits and losses in proportion to their cash contributions.
They purchased a plot of land measuring 5000sq meters for Lkr.50, 000. it was
decided to sell the land in smaller plots and a plan was got prepared at the cost of Lkr.
1200. In the said plan 1/5 of the total area of the land was left over for public roads
and the remaining land was divided into 8 plots of equal size. Out of 8 plots, 3 plots
were sold @Lkr. 15 per square meter and the remaining 5 plots were sold @Lkr. 14
per square meter. Expenses incurred in connection with the plots were: registration
expenses Lkr.4, 000, stamp duty Lkr.400 and other expenses Lkr.1, 000. Allow 2% on
the sale proceeds as commission to Rajeev.
Journalize the above transactions, and prepare the necessary ledger accounts.
[Ans: loss Lkr. 250; Amount paid to Rajeev Lkr.40, 983 and Ashok Lkr.19, 917]
(Assume that joint venture transactions are recorded through Memorandum Joint
Venture Account)
11. Anil and Ravi entered into a joint venture involving the buying and selling of old
railway materials. They decided to share the profit or loss equally. The cost of the
goods bought was Lkr. 21250 which was paid by Anil who drew a bill on Ravi at two
months for Lkr. 15000. The bill was discounted by Anil at a cost of Lkr.120.
The transactions relating to the joint venture were:
a) Anil paid Lkr. 150 for carriage, Lkr.250 for commission on sales and Lkr. 100
travelling expenses.
b) Ravi paid Lkr. 50 for travelling expenses and Lkr. 75 for sundry expenses
c) Sales made by Anil amounted to Lkr. 10000.
d) Sales made by Ravi were Lkr. 15000.
Goods costing Lkr. 500 and Lkr. 750 (being unsold stock) were retained by Anil and
Ravi respectively, and these were charged to them at prices so as to show the same
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gross profits as made on the total sales. Anil was credited with a sum of Lkr. 200 to
cover the cost of warehousing and insurance. The expenses in connection with the
bills were to be treated d as a charge against the joint venture.
Show the necessary accounts in the books of each party and prepare the memorandum
joint venture account. [Assume that joint venture transactions are recorded through
memorandum joint venture account].
[Ans: profit on joint venture Lkr. 4368 (approx); payment by Anil to Ravi Lkr.1371
(approx); rate of gross profit 25%; stock taken over by Anil valued at Lkr.625, and
Ravi at Lkr.938 (approx)].
12. X and y entered into joint venture for buying and selling bamboos, and to share profits
and losses in the ratio of 3:2. X purchased bamboos coasting Lkr. 150000 and paid
Lkr. 1600 for carriage, Lkr. 600 towards travelling expenses, and Lkr. 1400 as
commission on sales. He effected sales amounting to Lkr. 120,000. Y paid Lkr. 400
for study expenses and Lkr. 1000 for commission on sales. He effected sales
amounting to Lkr. 50000. Goods costing Lkr. 8000 were unsold and the same were
taken over by them in their profit sharing proportions.
Prepare memorandum joint venture account and personal accounts in the
books of X and Y.
[Ans: profit Lkr. 23000; financial payment Lkr. 42600]
13. L and S entered into a joint venture to buy and sell second hand machinery. Profits
and losses were to be shared-L, two-third and S, one third. On March 18, 2005, L
bought two machines for Lkr. 360 and Lkr. 420 respectively. He incurred expenditure
of Lkr. 80 on repairs, and on April 17, 2005, sold one of the machines for Lkr. 600
and April 24, 2005, the other machine for Lkr. 580. He paid Lkr. 750 of the proceeds
into his own bank account and the balance to S. On May 7, 2005 he bought another
machine for Lkr.720 which was sold on May 24, 2005 for Lkr. 800, 5% cash discount,
and the proceeds were handed over to S. On March 25, 2005, S bought a machine for
Lkr.400 on which he incurred expenditure of Lkr. 50 and which he sold on April 12,
2005, for Lkr. 520, and paid into his bank account. This machine was returned by the
purchaser on April 20, 2005, and S paid him Lkr. 500 for it. As it was still unsold on
May 31, 2005, it was agreed that it should be taken over by L at a discount of Lkr. 60
on the sale price of this machine. On May 31, 2005, they required in full settlement as
between L and S was paid by the party accountable.
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Prepare the joint venture with S account as it would appear in the books of L, and the
memorandum joint venture account showing the net profit.
14. R and S entered into a joint venture whereby R would make all purchases and S
would effect sales for which S is entitled to a commission of 10% on sales. They
shared profits and losses equally. R bought goods for Lkr. 80,000 and drew a bill on S
for the amount which is discounted for Lkr. 72000. S sold a portion of the goods for
Lkr. 64,000 for which his expenses amounted to Lkr. 6,000.on closing the venture the
unsold goods were taken over by R for Lkr. 12000.
Prepare memorandum joint venture account and personal accounts in the
books of R and S.
[Ans: Loss on venture Lkr. 24400; Final payment Lkr.16200]
15. Anil and Manoj entered into a joint venture to deal in second hand scooters for a
period of one year, and to share profits and losses equally. Anil purchased scooters for
Lkr. 140000 and Manoj for Lkr. 160000. Repairing and other charges paid by Anil
were Lkr. 30000 and that by Manoj were Lkr. 20000. Anil sold scooters for Lkr.
200000 and Manoj sold for Lkr.90000. on closing the venture the unsold scooters
were bought by Anil for his private business for Lkr.30000.
Pass journal entries in the books of Anil and Manoj, and prepare memorandum
joint venture account and personal accounts.
[Ans: Loss on venture Lkr. 30,000; Personal account balance Lkr.75, 000]
16. A, B and C enter into a joint venture to share profits in the ratio of 3:2:1, respectively.
A, B and C contributed Lkr. 3000, Lkr. 4,000 and Lkr.5, 000 respectively, and were
deposited in a joint bank account. They purchased goods worth Lkr. 10,000 from D
and made the payment by chaque. They incurred Lkr. 250 as expenses on the goods
purchased. A part of the goods was sold for Lkr. 9000 and the amount was received in
cash. The remaining goods were sold to E on credit for Lkr. 6,000, who accepted a
bill, which was discounted for Lkr. 5,900. A was allowed commission at 5% on sales
for his extra services.
Prepare joint venture account, joint bank account and personal accounts.
[Ans: profit Lkr. 3,900; Amount due to A Lkr. 5,700; Amount due to B Lkr.
5,300; Amount due to C Lkr. 5650]
17. A and B decided to trade together in imported watches. Profits and losses were to be
shared, A 2/3 and B 1/3.
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Red
Blue
80
64
Showroom charges
225
120
Red paid into his bank net receipts of Lkr. 140 in respect of commission given by the
manufacturers.
On 1st July, 2002 the sum required in full settlement as between red and
Blue
was
On 1st November, 1996, Ram purchased 700 bales of cotton @Lkr. 110 per
bale, the brokerage being Lkr. 4 per bale.
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ii.
On 1st December, 1996, Shyam purchased 600 bales of cotton @ Lkr. 124 per
bale, the brokerage being Lkr.4 per bale.
iii.
On 1stjanuary, 2012, Shyam sold 350 bales of cotton @ Lkr. 138 per bale (the
brokerage being Lkr.2 per bale) and took the proceeds of himself.
iv.
On 15th January, 2002, Ram sold 800 bales of cotton @L kr. 132 per bale (the
brokerage being Lkr.2 per bale) and took the proceeds of himself.
It was also agreed that each of the partners will at first sell from his own
purchase and then, if required from the stock purchased by the other one. The
balance of stock was to be divided between the partners in proportion of their
profit sharing ratio, goods being valued at cost to the partner concerned.
On 31st January, 2002, the partners settled their accounts. Show the accounts
of Ram, Shyam and the joint venture as would appear when maintained in a
separate books.
[Ans: profit Lkr. 12733; amount paid to Shyam Lkr.27574 and received from Ram
Lkr. 27574]
21. A and B enter into a joint venture sharing profits and losses equally. A purchased
goods for Lkr. 5000 and B spent Lkr. 1000 for freight on 1 st January, 2002. On the
same day B bought goods worth Lkr. 10000 on credit. Further expenses were incurred
as follows:
On 1-2-2002 Lkr. 1500 by B
On 1-3-2002 Lkr. 500 by A
Sales were made against cash as follows:
15-1-2002 Lkr.3000 by A
31-1-2002 Lkr.6000 by B
15-2-2002 Lkr.3000 by A
1-3-2002 Lkr.4000 by B
Creditors for goods were paid as follows:
1-2-2002 Lkr.5000 by A
1-3-2002 Lkr.5000 by B
On 31st March, 2002 the balance stock was taken over by B at Lkr. 9000. The accounts
between the venturers were settled by cash payment on this date. The venturers are entitled to
interest at 12 % per annum.
Prepare necessary ledger accounts in the books of venturers.
[Ans: profit Lkr. 6915; Amount received from B Lkr. 8092]
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22. Sakthi and Sathan agree to enter into a joint venture to buy and sell television sets.
Profits and losses were to be shared equally.
On 5th May, 2002 Sakthi purchased three television sets for Lkr. 300, Lkr. 3500 and
Lkr. 4000 respectively. He bought a special cabinet costing Lkr. 750, which was to be
fixed for one of the sets. On 31 st May, 2002 he sold two of the sets for Lkr. 4000
paying the proceeds into his private bank account.
On 6th May, 2002 Sathan purchased a TV set for Lkr. 3000 having incurred
expenditure of Lkr. 200 on repairing, sold it on 14 th May, 2002 for Lkr. 3800, paying
the proceeds into his own bank account. This set developed mechanical trouble and on
26th May, 2002 Sathan agreed o take the set back at a price of Lkr. 2800 which he
paid out of his bank account. The set was still unsold at 30 th June, 2002 and it was
agreed that Sathan should take it over for his personal use at a valuation of Lkr. 2600.
Sakthi incurred Lkr. 300 as showroom charges and Sathan incurred Lkr. 225 as
travelling and postage expenses.
You are required to prepare:
(a) The account of joint venture with Sakthi as it would appear in the books of Sathan
and
(b) Memorandum joint venture account showing the net profit.
[Ans: Profit Lkr. 1125; Balance due to Sakthi Lkr. 4112]
23. Wad and Pad enter into a joint venture to develop some building sites and sell them
on the understanding that the result of the venture would be shared in the ratio of 4:5
between them. It is also agreed that any cash investment they make in the 4:5 between
them. It is also agreed that any cash investment they make in the venture would be
entitled to interest at 10% p.a.
They chose a five acre agricultural plot and purchased it for Lkr. 60,000. They
approached a nationalized bank which agreed to finance them to the extent of 80% of
the cost at 16% interest per annum. The buying arrangements were finalized on 1 st
July, 2002 and the vendors paid off on the same day. Balance of purchase
consideration and also the registration expenses which came to 8% were met by Wad
from out of his own resources.
Pat met the costs of preparation of the layout, advertisement etc., which were
as under:
(a) Leveling and engineering costs paid to architects
and town planners on 1-8-2002
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Lkr. 17500
Lkr. 1120
Plots were advertised for sale in newspapers on 15-9-2002 and on the basis of
response; the entire area was dealt with as under:
(1) 15% of the total area was to be left for roads, market place, police station and a
park.
(2) 10 plots each of 3, 2.5 and 1.5 grounds were made.
(3) The balance area was taken equally by wad and pat at cost.
(4) 1.5 ground plots carried a premium of 50%, 2.5 ground plots a premium of 40%
and 3 ground plots a premium of 25% over cost.
(5) Pat to receive 8% of the sale proceeds as management fee for his efforts.
The entire transactions were put though by 31 st December, 2002. Show the joint
venture account and the statement of account settlement between the venturers.
(1 acre is equal to 18 grounds of 2400sq. feet each)
[Ans: Profit Lkr. 10455; Amount paid to: Wad Lkr. 16762 and Pat Lkr. 92898]
24. On 1st January, 2002, Singh of Panjabi, a manufacturer of sports goods, sent a
consignment of 100 cricket bats to Bazaar of cashmere to be sol on a consignment
basis at a commission of 20%, such a commission to cover the consignees expenses
but not the freight charges of the goods to cashmere. The cost of each bat is Lkr. 100
but is invoiced to Bazaar at Lkr. 150 each. a case containing 10 cricket bats was lost
against which the consignor lodged a claim and collected from the insurance company
Lkr. 800. The consignee paid Lkr. 540 as freight charges and spent a further sum of
Lkr. 400 as sales expenses. Consignors expenses amounted to Lkr. 500. The
consignee accepted a bill of exchange drawn by Singh for 3 months (beginning with
the date of dispatch) for Lkr. 10000 which was discounted at 6% p.a. with the
bankers. Bazaar sold 75 bats at Lkr. 200 each and on 30 th June, 2002 remitted the
balance due from him.
After making up the accounts on 30th June, 2002, they decide to convert their
relationship to that of a joint venture on the terms that the cost of a bat would be taken
of Lkr. 150. Singh to get an interest of 8% p.a. on his investment and Bazaar to get a
commission of 10% on sales. Venturers are to share profit and losses equally.
Prepare the necessary accounts in the books of Singh and indicate the adjustment
journal entry required on conversion of the terms of dispatch.
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[Ans: Profit on consignment Lkr. 3675; Abnormal loss Lkr.250; value of consignment
stock at I.P. Lkr. 2415; Balance received from Bazaar Lkr. 1460. On conversion: Loss
on joint venture Lkr. 325; Net amount due from Bazaar under joint venture Lkr. 1262]
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the venture in the books of A calculating interest at 5% per annum. In months to the
nearest rupee.
[Ans: profit on joint venture Lkr. 348; amount paid to B Lkr.1519]
Hint: interest credited to A and B Lkr.7 and Lkr.15 respectively
28. David of Bombay and Khosla of Delhi entered into a joint-venture for the purpose of
buying and selling second hand motor cars. David to make purchases and Khosla to
effect sales. The profit or loss was to be shared equally. Khosla remitted a sum of Lkr.
150,000 to David towards the venture.
David purchased 5 cars for Lkr. 160,000 and paid Lkr. 60,000 for their reconditioning
and sent them to Delhi. He also incurred an expense of Lkr.5, 000 in transporting the
cars to Delhi. Khosla sold 4 cars for Lkr. 240,000 and retained the fifth car for himself
at an agreed value of Lkr. 50,000. His expenses were: insurance Lkr.1,000; garage
rent Lkr. 2,000; brokerage Lkr.2, 000; and sundry expenses Lkr.400.
Each partys ledger contains a record of his own transactions on joint account. Prepare
a statement showing the result of the venture and the joint venture account with David
in the books of Khosla as it will finally appear, assuming that the matter was finally
settled between the parties.
[Ans: profit on joint venture Lkr. 59,600; amount paid to David in final settlement
Lkr.104, 800]
29. A in Delhi enters into a joint venture with B in Bombay to ship cotton bales to C in
Japan. A sends cotton to the value of Lkr.15000 pays railway freight etc. Lkr 750 and
sundry expenses Lkr.800. B sends goods valued at Lkr.10370 and pays freight and
insurance Lkr.600;dock dues Lkr.100;custom charges Lkr. 250;and other sundry
expenses Lkr. 250. A advances to B Lkr. 3000 on account of the venture.B receives
account sales and remittance of the net proceeds from C in Japan for the whole of the
goods amounting to Lkr. 40000. Show how joint venture transactions will be recorded
in the ledgers of A and B.
[Ans: profit on joint venture Lkr. 11880; amount received from B Lkr.25490]
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goods worth Lkr. 10000 from N and made him payment by cheque. They incurred
Lkr.250 as expenses on the goods purchased.
A part of the goods was sold for Lkr.9000 and the amount was received in cash.
The remaining goods were sold to P on credit for Lkr.6000, who accepted bill
which was discounted for Lkr. 5900. X was allowed commissions @5% on sales
for his extra services. Prepare joint venture account, joint bank account and
personal accounts.
2. Tinku and Ninku,sharing profits equally, decided to enter into a joint venture
agreement to construct a small bungalow for Easy Money Trading Co .,New
Delhi, at a price of Lkr.200000, to be paid as to Lkr.150000 in cash and the
balance in equity shares.
An account was opened by them with bank of Ceylon. Tinku depositing Lkr.
100000 and Ninku Lkr.75000.
The following transactions took place:
(1)Tinku had the plans prepared and paid Lkr. 10000 to the architect. Ninku paid
Lkr. 25000 to purchase a concrete mixer.
(2) They paid Lkr. 20000for plant; Lkr.50000 for materials; Lkr. 25000 for wages;
and Lkr. 2000 fro freight and other miscellaneous expenses.
(3) Construction being completed, Tinku took over unused materials at Lkr.5000
and Ninku, the concrete mixer at Lkr. 15000. Plant was sold to a scrap dealer
for lkr.7000.
(4) Tinku agreed to take over the equity shares at Lkr. 45000.
Prepare joint venture account and joint banking accounts as well as accounts
of Tinku and Ninku.
3. S bought goods of the value of Lkr. 7500 and consigned them to R to b sold by
them on a joint venture, profits being divided equally. S paid Lkr. 550 for freight
and insurance .s drew on R bill for lkr.3000. The bill was discounted for Lkr.
2900. R paid Lkr. 300 for warehousing, cartage, etc., goods were sold for Lkr.
12500 and sales expenses paid by R amounted to Lkr. 250. R sent demand draft
for balance amount after deducting 5% commission on the gross sale proceeds.
Write ledger accounts in the books of both the parties.
4. Ajay and Vijay enter into a joint venture to sell a consignment of timber sharing
profits and losses equally. Ajay provides timber from stock at a mutually agreed
value of Lkr 5000. He pays expenses amounting to Lkr. 250. Vijay incurs further
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expenses on cartage, storage and cooliage of Lkr. 650 and receives for sales Lkr.
3000. He also takes over goods to the value of Lkr. 1000 for his use in his own
business. At the close Ajay takes over the balance stock in hand which is valued at
Lkr. 1100.
Prepare joint venture account and Co-sharers account in the books of Ajay.
5. Das and Krishan entered into a joint venture sharing profits and losses 3:2.they
opened a Bank Account by depositing Lkr. 40000 each. Das purchased 800 kgs of
an item @ Lkr. 60 and his expenses were Lkr.13000.krishan purchased a second
item of 10000kgs @ 2.10 and his expenses were Lkr. 11000. Expenses were met
from private sources and purchases were paid from Bank Account. Das sold
600kgs of the first item @ Lkr. 100 and his selling expenses were Lkr. 6000. All
the sale proceeds were deposited in the bank account and expense were met from
private sources.
Write up necessary accounts in the books of the venture and also prepare a
balance sheet of the venture.
6. A and B join together to construct a building for Lkr. 1000000, sharing profits and
losses equally. A banking account is opened in the joint names of A and B. A paid
Lkr. 30000 in cash and B paid Lkr. 35000 in cash in the bank. Their transactions
were as follows:
LKR
Wages paid
375,000
Materials bought
280,000
Materials supplied by A
120,000
Materials supplied by B
35,000
Architects fee
42,000
Travelling expenses
Miscellaneous expenses
8,000
34,000
The contract was completed and the price duly received. A took over stock of
building materials valued at Lkr. 27000. Prepare ledger accounts in the books of the
joint venture.
Suggested Readings
1. Fundamentals of Accounting by R.L. Gupta and V.K. Gupta, Sultan Chand and Sons, New
Delhi.
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2. Advanced Accounting by R.L. Gupta and M. Radhaswamy, Sultan Chand and Sons, New
Delhi.
3. Advanced Accounting by Ashok Sehgal and Deepak Sehgal, Taxmann Allied Services Pvt.
Ltd., New Delhi.
4. Advanced Accounts by M.C. Shukla, T.S. Grewal and S.C. Gupta, S. Chand and Co. Ltd.,
New Delhi.
5. Fundamentals of Advanced Accounting by R.S.N. Pillai and V. Bagavathi, S. Chand and
Co. Ltd., New Delhi.
6. Studies in Advanced Accounting by S.N. Maheshwari, Sultan Chand and Sons, New Delhi.
7. Financial Accounting by Shashi K. Gupta, Nisha Aggarwal and Neeti Gupta, Kalyani
Publishers, Ludhiana.
References:
1. Ashok Sehgal and Deepak Sehgal (2003); Fundamental of Financial Accounting;
Taxmann Allied Services Pvt Ltd.
2. Barnes V.D.P and Brown D.M and Call W.V and Drew A.G (1991); Financial
Accounting; Tafe Educational Books; Australia
3. Chandra Boss.D, (2010); Advanced Accounting, Volume: 1; Edition; PHI Learning
Private Ltd.
4. http://www.accounting4management.com/consignment_accounting_problems.htm
5. http://www.accounting4management.com/consignment_accounting_questions_and_a
nswers.htm
6. Jain S.P and Narang K.L (2005); Financial Accounting; Kalyani Publishers
7. Jain S.P and Narang K.L (2005); Problems and Solutions in Financial Accounting;
Kalyani Publishers.
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