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: Bachelor of Commerce (Special) Degree First Examination in Commerce 2011/2012 1st Semester Course Title : FINANCIAL ACCOUNTING Course Code : BCOM 11124 Course Status : Core Handout Title : JOINT VENTURE ACCOUNTING Prepared By : B.Prahalathan, Dept.of Commerce & Financial Management Issue Date : 15th December 2011 Learning Objectives:
Understand special features of Joint Venture transactions, Learn the techniques of preparing Joint Venture Account and also the settlement of accounts with the co-venturer(s), Familiarize with the use of Memorandum Joint Venture Account, Learn the technique of deriving venture profit and its allocation among the venturers Distinguish joint venture with partnership.
Introduction
A joint venture is the combination of two or more persons into a single activity. It is a form of partnership which is limited to a specific venture. A Joint Venture is a very short duration business (generally, confined to a single transaction, like, buying some surplus and stores and selling them) entered into by two or more persons jointly. Joint Venture may be described as a temporary partnership between two or more persons without the use of the firm name, for a limited purpose Venture may be for the construction of a building or a bridge, for the supply of certain quantity of materials or labour and even for the supply of technical services. The persons who have so agreed to undertake a Joint Venture are known as Joint Venturers or Co- Venturers.
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Joint Venture A/C Debtors A/C 13 For payments to creditors Creditors A/C Joint Bank A/C 1 For commission payable to any managing venturer 4 Joint Venture A/C Co-venturers A/C 1 After passing the above entries, the balance of the joint venture account will 5 show the profit or loss i. If profit Joint Venture A/C Co-venturers A/C ii. If Loss Co-venturers A/C Joint Venture A/C 1 Now the joint bank account and co-venturers accounts show some balance. 6 The sum total of Co-venturers accounts must be equal to the joint bank account balance. 1 For final settlement 7 i. If any of the co-venturers account shows debit balance, he will bring in money and the entry is Page 2 of 3
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Joint bank A/C Co-venturers A/C Credit balance of the other co-venturers will be paid off Co-venturers A/C Joint Venture A/C
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PRCTICAL PROBLEMS
WHEN SEPARATE SET OF BOOKS ARE MAINTAINED FOR THE JOINT VENTURE They opened a joint bank account in which M and A contributed Rs.8, 000 and Rs.10, 000 respectively. They purchased 10 condemned television sets at Rs.1, 500 each. They met the reconditioning cost Rs.3, 000 from the joint bank account. Carriage and other expenses of Rs.2, 000 were bore by A. A received a cheque of Rs.1, 000 from M. Nine sets were sold at Rs.2, 500 each and the rest was taken over by A at cost. Pass necessary journal entries and prepare joint venture account, joint bank account and close the accounts of the venture.[13.4/1]
1. M and A entered into a joint venture and agreed to share profits and losses in the ratio of 2:3.
2. Ram and Ravan are carrying on a business as contractors. They jointly take up the work of
constructing a building for Mr.Bose at an agreed price of Rs.500, 000 and Rs.300, 000 payable in cash and Rs.200, 000 payable in fully paid shares of a company. A bank account is opened in which Ram and Ravan paid Rs.300, 000 and Rs.75, 000 respectively. The following costs were incurred in completing the construction.
Salary paid Rs.100, 000 Material Purchased Rs.200, 000 Materials supplied by Ram from the stock of his own business - Rs.50, 000 Engineers fee paid by Ravan - Rs.10, 000
The contract price was duly received. The accounts of the venture were closed. Ram taking up all the shares at an agreed valuation of Rs.170, 000 and Ravan taking up the unsold stock of materials at Rs.15, 000. Prepare necessary accounts in the ledger of the venture assuming that a separate set of books are maintained for this purpose and that the net result of the same is shared by Ram and Ravan in the ratio of 3:2.[13.5/2] 3. SD and SG entered into a joint venture to construct a building for a new company. Profit and losses were to be shared in the ratio of 3:2. SD invested Rs.200, 000 and SG Rs.100, 000. The money was deposited to a joint bank account with arrangement of overdraft. SD also supplied materials valued Rs.35, 000 and SG paid the architects fees Rs.15, 000. SG also supplied a machine valued Rs.25, 000. Building materials valued Rs.400, 000 and wages of Rs.100, 000 were met from the joint bank account. On completion of the construction, the company paid Rs.800, 000 out of which Rs.400, 000 was in cash [deposited into joint bank account] and the balance of Rs.400, 000 was in fully paid shares of Rs.10 each. These shares were sold at Rs.9.50 each and the proceeds taken by SD and SG in the ratio of 3:1. The machine supplied by SG was taken aback by him at an agreed value of Rs. 15, 000. Bank charged interest Rs.1, 000 for the overdraft. Prepare necessary ledger accounts.[13.5/3] Amal and Bimal entered into a joint venture on 01.10.2010 for sale of specified goods paying Rs.60, 000 and Rs.40, 000 respectively in a joint bank account- sharing profits and losses in the ratio of 3:5. It was agreed that joint bank account is to be used for purchases and sales and each venturer is to meet his joint venture expenses out of private funds. Each venturer is to charge a commission at 5% on sales made by him. The transactions for the period ended 31.03.2011 were as follows. Amal purchased goods costing Rs.40, 000 and expenses in connection thereof amounted to Rs.6, 000. He sold 90% of these goods at 30% over the cost price and selling expenses amounted to Rs.2, 500. Bimal purchased goods costing Rs.50, 000 and expenses in connection thereof amounted to Rs.6, 500. He sold 80% of these goods at 25% over the cost price and selling expenses incurred Rs.3, 000. 1/5 th of remaining goods purchased by Amal was destroyed by fire on 28.02.2011 and the insurance company paid a claim for Rs.2, 000. Write up joint venture account, joint bank account and venturers accounts. [13.6/4]
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