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4/19/2019 Financial Accounting Coach: TOPIC 8 : JOINT-VENTURE ACCOUNT

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TOPIC 8 : JOINT-VENTURE ACCOUNT

CHAPTER 4
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4/19/2019 Financial Accounting Coach: TOPIC 8 : JOINT-VENTURE ACCOUNT

Joint-Venture Accounts

NORMALA SALIMIN

CHAPTER 4 JOINT VENTURE ACCOUNTS

4.1 The Nature of Joint Venture Business

4.1.1 Descrip on of The Term of ‘Joint Venture’

Joint venture is a collabora on of a business which is not permanent. It only runs one economic
ac vity in one period un l the objec ve is met. The collabora on will end once the objec ve /
mo ve is implemented.

It is also a partnership limited to a par cular venture. It does not make use of a firm’s name and
the par es concerned will agree among themselves to contribute capital towards the venture
and to share all profits or losses. For example a merchant trading might provide the ship,
another goods and another capital, any profits or losses would be divided in accordance to an
agreed ra o.

Joint venture can broadly classify into two systems.

One system of Joint Venture is where a separate set of books is opened and the transac ons are
recorded in a similar manner as that of a partnership.

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4/19/2019 Financial Accounting Coach: TOPIC 8 : JOINT-VENTURE ACCOUNT

The other system is that no separate set of books is opened to record the transac ons. Each
party will record his own transac ons in his own books.

For this purposes, the party will open up account known as Joint Venture with __________
account. Provided that each investor recorded their own transac on only, the other party has to
prepare the details of transac on which is already prepared in order to determine the profit or
loss. All the transac ons will be combined in the Memorandum Joint Venture Account. The
memorandum is not a double entry system.

The memorandum joint venture account effects a profit and loss, each venturer calculates his
share of profit or losses. This share is then entered in the double entry being completed
between the profit and loss account and joint venture accounts.

A er all this is completed, the balance on each party’s joint venture account represents the cash
transfer required to close the venture. Naturally in total the debit and credit balances are either
carried down into the next accoun ng period or se led by the appropriate bank/cash payment
or receipt. The transfer is recorded in the books of each venture, double entry being completed
between the cash/bank account and joint venture account.

4.1.2 Differences Between Joint Ventures And Partnership

Joint Venture Partnership


* Two or more persons have decided to * Two or more persons agree to join
enter into a business venture together forces in some kind of business venture.
without wishing to form a normal long
term partnership.
* Not permanent, normally will be closed * Long term opera on, normally will
once the objec ve is met. be closed down due to several reasons,
i.e. the death of a partner, bankruptcy
etc.
* Each party can contribute in different * All or parts of the partner will be
ways to the venture. For example, one involved in handling the business and
venture may provide finance, another can also contribute capital.

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purchase, while the third offers his


marke ng skills.

4.2 The Accoun ng Records For Joint Venture Business

4.2.1 Joint Venture Accounts

The journal entries will be:

Debit Anything the ventures put into the enterprise (e.g. Cash, purchases, expenses paid
etc).
Credit Anything the ventures take out of the enterprise (e.g. Sales and cash withdrawal,
assets withdrawal etc.

In the book of P

Joint Venture with Q Account

Cash – purchases by P X Cash – sales by P X


Cash – expenses by P X Debtors – credit sales by P X
Bad debts (if no del crede commission) X Assets taken over X
Sales commission X Assets a/c - Stock withdrawal X
Profit and loss – P’s share of profit X
Cash – paid to Q X
XX XX

In the book of Q

Joint Venture with P Account

Cash – purchases by Q X Cash – sales by Q X


Cash – expenses by Q X Debtors – credit sales by Q X
Bad debts (if no del crede commission) X Assets taken over X
Sales commission X Assets a/c - Stock withdrawal X
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Profit and loss – Q’s share of profit X Cash from P X


X
XX XX

4.2.2 Memorandum of Joint Venture

The memorandum joint venture account is not a double entry account. It is drawn up only to
find out

a) the shares of the net profit or loss, and

b) to help calculate the amounts payable and receivable to close joint venture

Memorandum Joint Venture Account

Purchases a/c – total purchases by P & Q X Sales a/c – total receipt by P & Q X
Expenses a/c – total expenses by P & Q X Debtors – credit sales by P & Q X
Commission received by P & Q X Assets taken over by P & Q X
Profit and loss: Assets a/c - Stock withdrawal X
P’s profit X X
Q’s profit X
XX XX

Example 1 :

Filza Pvt Ltd and DYN Pvt Ltd are suppliers of instant seasoning in Selangor. Both companies have agreed to
undertake a joint venture to introduce new products. Filza will supply the product and bear any expenses
incurred. DYN will sell the product and receive cash, and also cover any relevant expenses. Profit and losses
were to be shared equally. The followings are the relevant informa on regarding the transac ons occurred:

RM
Filza borne the cost of the product 1,800
Filza paid wages 200
Filza paid storage cost 160
DYN paid cost of carriage 120

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DYN paid selling expenses 320


DYN received cash from sales 3,200

Workings:

Step 1

Filza and DYN will prepare their own Joint Venture Account respec vely. Filza will open the “Joint Venture
Account with DYN” and vice versa. The double entry for this transac on was as follow:

In the book of Filza Pvt Ltd Payment Dt Joint Venture Account with DYN

Ct Cash Account

Purchases Dt Joint Venture Account with DYN

Ct Purchases

In the book of DYN Pvt Ltd Payment Dt Joint Venture Account with Filza

Ct Cash Account

Receipt Dt Cash Account

Ct Joint Venture Account with Filza

In the book of Filza Pvt Ltd

Joint Venture with DYN Account

RM RM
Purchases 1,80
0
Cash: Wages 200
Cash: Storage cost 160

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4/19/2019 Financial Accounting Coach: TOPIC 8 : JOINT-VENTURE ACCOUNT

In the book of DYN Pvt Ltd

Joint Venture with Filza Account

RM RM
Cash: carriage 120 Cash: Sales 3,20
0
Cash: selling expenses 320

Step 2

The Memorandum Joint Venture Account is prepared in order to determine whether the company gains
profit or suffer a loss. The distribu on of profit or loss is made based on the agreed ra o which is to be
shared equally. The details in the memorandum are the combina on of every Joint Venture Account.

Memorandum Joint Venture Account

RM RM RM
Purchases 1,800 Sales 3,200
Wages 200
Storage expenses 160
Carriage expenses 120
Selling expenses 320
Profit:
Filza (½) 300
DYN (½) 300 600
3,200 3,200

Step 3

The profit obtained by Filza and DYN will be distributed in their accounts.

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Filza’s book Profit Dt Joint Venture Account with DYN

Ct P&L

DYN’s book Profit Dt Joint Venture Account with Filza

Ct P&L

In the book of Filza Pvt Ltd

Joint Venture with DYN Account

RM RM
Purchases 1,80 Balance c/d 2,46
0 0
Cash: Wages 200
Cash: Storage cost 160
P&L 300
2,46 2,46
0 0
Balance b/d 2,46 Cash from DYN 2,46
0 0

In the book of DYN Pvt Ltd

Joint Venture with Filza Account

RM RM
Cash: carriage 120 Cash: Sales 3,20
0
Cash: selling expenses 320
P&L 300
Balance c/d 2,46
0
3,20 3,20
0 0
Cash paid to Filza 2,46 Balance b/d 2,46
0 0

EXERCISES

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4/19/2019 Financial Accounting Coach: TOPIC 8 : JOINT-VENTURE ACCOUNT

QUESTION 1

Haniz and Wandy, run the business together on the basis that the transac on gains and losses be divided
equally. They do not have bank accounts and do not have any books that open a special account to record
these transac ons. Each of them will do the record transac on respec vely. The following are the
transac ons:
Year 2010

Jan 31 Haniz bought by cash at RM 1,200


Feb 28 Haniz paid the fares at RM 20

Mac 15 Wandy paid for storage expenses at RM 11

25 Wandy paid the insurance at RM 5


May 15 Wandy selling goods for cash amounted RM 1,650
29 Wandy bought two equipment to cost RM 230 each for cash
June 26 Haniz paid freight and insurance at RM 24
Jul 15 Haniz paid repairs cost at RM 85
Aug 6 Haniz sold equipment in cash RM 652
21 Haniz bought by credit at RM 230
Sept 18 Wandy paid freight and insurance at RM 10
25 Wandy sold goods for cash RM 260

They had decided to discon nue the joint venture on 30 September 2010. You are required to prepare a
joint venture statement (memorandum with the transac on) and show the ledger accounts in respect of
the books Haniz and Wandy.

QUESTION 2

Fauzi and Syamsul are iron merchants who each have their own business. They have agreed to work
together and share profits or losses equally. The following are transac ons carried out by both the 2013

Transac ons Fauzi (RM) Syamsul (RM)


Iron purchased 24,800 18,900
Iron sales 37,700 29,500
Store rental 2,400 1,200
Transporta on expenses 3,790 1,950
General expenses 580 870
Purchase of vehicles 5,200 -
U li es costs 560 930

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At the end of the transac on, it was found that there is unsold iron by Fauzi worth RM3,100 and RM1,090
by Syamsul. Both par es have agreed to take over the iron-steel and will be credited to their accounts.
Fauzi and Syamsul also agreed to impose a charge of 5% on the overall profitability of their business for
service charges and they run their business equally.

Required:
a. Account for transac ons with the both par es
b. Memorandum account transac ons with Fauzi and Syamsul with regard to all ma ers agreed

QUESTION 3

Tria and Elisa conduct joint ventures on the basis that profits and losses will be shared equally. Each party
had a par cular transac on in their books. Here are the transac ons involved in the collabora on:

Year 2010

Jan 31 Tria bought goods for cash, RM5, 200


Mar 28 Tria paid transporta on costs, RM95
May 15 Elisa paid storage costs at RM150
25 Elisa paid insurance expenses at RM100
Jun 6 Elisa sold goods for cash, RM7, 000
14 Elisa bought a used computer with price RM1, 500 in cash
Jul 21 Tria paid transporta on costs, RM50
23 Elisa se led the cost of repairs, RM20
Aug 14 Tria sold table in cash, RM75
Nov 3 Elisa bought the goods for cash, RM3,000
18 Elisa paid the cost of fares, RM40
19 Tria sold goods for cash, RM7, 500

Tria and Elisa agreed to terminate the joint venture business on 30 November 2010. You are required to
prepare a Statement of Joint Ventures (Memorandum of Joint Ventures) and show the ledger accounts in
respect of the books Elisa and Tria.

QUESTION 4

Yee and Tee were business venture to buy and sell the bricks. They started the business on 2nd January
2011. They agreed to divide the profits or losses in propor on to the contribu on of RM12,500. On April
4th, Tee has been taken brick to repair the house with an agreed amount of RM800. Because Yee has
requested to know the development of their business, they agreed to calculate the amount of profits
earned up to 30th June 2011. On closing date, the total number of bricks that were not been sold worth
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RM3, 800.

Addi onal Informa on:


(i) Capital contribu ons by Yee RM7, 500 and Tee RM5, 000
(ii) Order the brick manufacturers in the state of RM12, 900. Fares, insurance and unloading

expenses of RM1, 500


(iii) Gross Sales un l June 30 is RM14, 370 and expenses associated with retail sales

amoun ng to RM285
(iv) Interest on the agreed capital of 4% per year
(v) Cash payments on loans : Yee of RM5, 000
Tee of RM3, 000
(vi) They want to open a set of books for recording transac ons and joint ventures.

Required to prepare a Memorandum of Joint Ventures and Joint Ventures account with Yee and Tee.

QUESTION 5

Upin and Ipin, run the business together on the basis that the transac on gains and losses be divided
equally. They do not have bank accounts and do not have any books that open a special account to record
these transac ons. Each of them will do the record transac on respec vely. The following are the
transac ons during year 2012 :

Jan 29 Upin bought by cash at RM2,100


Feb 18 Upin paid the freight and insurance at RM320

Mac 12 Ipin paid for storage expenses at RM102

15 Ipin paid the freight and insurance at RM150


May 17 Ipin sold goods for cash amounted RM 3,850
24 Ipin bought two small machine to cost RM1,270 each for cash
June 25 Upin paid installa on cost at RM117
Jul 18 Upin paid repairs and maintenance cost at RM189

26 Ipin paid wages RM350.


Aug 16 Upin sold a machine by cash RM1,000
23 Upin bought by credit at RM1,450
Sept 17 Ipin paid prin ng, sta onery and postage RM104
27 Ipin sold goods for cash RM3,220

They had decided to discon nue the joint venture on 30 September 2012. You are required to prepare a
joint venture statement (memorandum with the transac on) and show the ledger accounts in respect of
the books Upin and Ipin.

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4/19/2019 Financial Accounting Coach: TOPIC 8 : JOINT-VENTURE ACCOUNT

QUESTION 6

Faris and Adib entered into a join venture for dealing in tropical fruit. They have agreed to work together
and share profits or losses equally. The following are transac ons connected with this venture :

Transac on Faris Adib


RM RM
Land rented 3,000 -
Purchase of seeds 2,500 4,300
Labour for plan ng 2,400 2,100
Motor expenses 235 1,200
Labour for fer lising 850 400
Labour for li ing 500 820
Sales received 5,050 3,780
Purchase machine 500 450
Sundries expenses 120 200

At the end of the transac on, it was found that there is stock unsold worth RM560 and both agreed to take
over the stock equally. They also agreed to take over the machine that had been bought by them a er
reduce 10% deprecia on.

Required:
a. Account for transac ons with the both par es
b. Memorandum account transac ons with Faris and Adib with regard to all ma ers agreed

28 comments:

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financialaccountingcoach.blogspot.com/p/joint-venture-account.html 12/18
4/19/2019 Financial Accounting Coach: TOPIC 8 : JOINT-VENTURE ACCOUNT

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Reply

Laila Hamizah Faiz 6 April 2016 at 08:21


Salam. If the joint venture has interest charge to each partner according to the amount invested. Then how is
the treatment for that? Thanks in advance ☺
Reply

Replies

Unknown 31 October 2017 at 06:42


calculate the memorandum with the level of capital inputted by each partner or agreement made on
how profit should be shared between the partners.

Reply

Laila Hamizah Faiz 6 April 2016 at 08:21


Salam. If the joint venture has interest charge to each partner according to the amount invested. Then how is
the treatment for that? Thanks in advance ☺
Reply

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4/19/2019 Financial Accounting Coach: TOPIC 8 : JOINT-VENTURE ACCOUNT

Anthony Felix Osman 19 July 2016 at 01:57


What if there more than two and profits and losses say going to be divided at two seventh,one seventh,and
three seventh.
Reply

Shadhin Kangal 4 October 2016 at 20:02

Business organizations needs to write and prepare ledger account wherein all the transactions of are recorded
permanently under different heads of accounts.
Reply

Ragu waran 29 January 2017 at 23:42

very good interested topics in eassy way

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Reply

Crazyzoo 3 February 2017 at 01:09


Thank you. this is helpful. do you have the solutions to the questions
Reply

Osatohanmwen Uwmeni 8 August 2017 at 14:07


I am Osato from university of Port Harcourt, Nigeria.This blog is of great help to me. Thanks and God bless.

Reply

Unknown 10 December 2017 at 16:43


how do you treat a loss in joint venture or where should it be recorded
Reply

Mammo Assefa 14 December 2017 at 05:55


Dear,Puan Normala and Puan Norizah.Thank you for the nice blog.I see this as useful blog which is presented
through diligence and humane mentality.If you have time I need blog on accounting sytem for home office and
branch office
Reply

Unknown 21 December 2017 at 04:43


please i need a solved answer of question No 4
Reply

Unknown 25 January 2018 at 21:12

do you have the marking scheme for question 1?


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4/19/2019 Financial Accounting Coach: TOPIC 8 : JOINT-VENTURE ACCOUNT
Reply

mercy karichu 7 February 2018 at 23:58


what about for 3 partners how do i go about it
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Swan Partners 27 April 2018 at 03:12

I really impressed through your blog content. Thanks for sharing.


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Jon Sigurdsson 23 May 2018 at 02:27


Thanks for this!
This was very useful accounting exercise

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Reply

preeti verma 17 June 2018 at 23:39

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4/19/2019 Financial Accounting Coach: TOPIC 8 : JOINT-VENTURE ACCOUNT
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Unknown 4 November 2018 at 04:00


Excellent keep it on
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Jon Sigurdsson 14 November 2018 at 01:01


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Unknown 22 January 2019 at 08:45


Thanks
Reply

Unknown 24 January 2019 at 12:59


show an example of how we can treat the losses made as well as if their is no cash to make settlements
Reply

Unknown 29 January 2019 at 06:44


why do you prepare joint vencher account?
Reply

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4/19/2019 Financial Accounting Coach: TOPIC 8 : JOINT-VENTURE ACCOUNT

Unknown 31 January 2019 at 23:47


Helpful
Reply

Unknown 3 March 2019 at 00:52


Helpful

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