13.5.1 RECORDING IN THE BOOKS OF ONE CO-VENTURER

 

13.5.1 RECORDING IN THE BOOKS OF ONE CO-VENTURER

If the joint venture business is not very large, the task of recording transactions can very well he entrusted to one of the co-venturers. He will prepare a Joint Venture Account and the personal accounts of other co-venturers. The Joint Venture Account is prepared for ascertaining the profit or loss of the joint venture. The personal account of other co-venturers are prepared to find out the amount due from them. As stated earlier, each co-venturer is also entitled to carry on his own business and these transactions will be in addition to what he records in respect of his own business. The following journal entries are passed in his books before preparing the necessary accounts of the joint venture.

1 When the co-venturers send their contribution:

Cash/Bank A/c    Dr.

To Co-venturer's Personal A/c

 

2 When the goods are purchased for the joint venture:

Joint Venture A/c     Dr.

To Cash/Bank A/c

 

3 When the goods are supplied from his own stock by the co-venturer who is recording the transactions: a

Joint Venture A/c      Dr.

To Purchases A/c

Here we are crediting Purchases Account because he is supplying the goods from his owl1 stock at cost. But if the goods are supplied by him at n price other than the cost price, we shall credit the Sales Account instead of the Purchases Account.

 

4 When the goods are supplied by other co-venturers:

Joint Venture A/c      Dr.

To Co-venturer's Personal A/c

 

5 When some expenditure is incurred on account of the joint Venture:

Joint Venture A/c       Dr.

To Cash/Bank A/c

 

But, if expenses are paid by a co-venturer other than the one who is recording the transactions, then the entry will be:

Joint Venture A/c       Dr.

To Co-venturer's Personal A/c

Here we have debited the Joint Venture Account because it is an expenditure on account of the joint venture business.

 

6 When the co-venturer recording the transactions sells the goods:

a)     For cash sales:

Cash/bank A/c      Dr.

To Joint Venture A/c

b)     For credit sales:

Debtor's Personal A/c     Dr.

To Joint Venture A/c

 

7 When cash is received from debtors:

Cash/Bank A/c     Dr.

To Debtor's Personal A/c

 

8 When some cash discount is allowed to the debtor making payment, or some bad debit are incurred:

Joint Venture A/c    Dr.

To Debtor's Personal A/c

  

9. When sales are made by other co-venturers:

Co-venturer's Personal A/c    Dr.

To Joint Venture A/c

 

10 When some cash or bills receivable are received from other co-venturers on account of sales made by them:

Cash/Bank/Bill Receivable A/c    Dr.

To Co-venturer's Personal A/c

 

1 1 When the co-venturers recording the transactions is entitled to some commission or salary:

Joint Venture A/c       Dr.

To Commission/Salary A/c

Joint Venture Account is debited as it is an expenditure related to the joint venture business.

12 When the unsold stock of joint venture is taken over by the co-venturer recording the transactions:

Purchases A/c    Dr.

To Joint Venture A/c

If the unsold stock is taken over by some other co-venturer, the journal entry will be:

Co-venturer's Personal A/c Dr.

To Joint Venture A/c

After passing the above entries, the Joint Venture Account is prepared. The balance of this account will show either profit or loss which is to be shared by all the co-venturers in their profit sharing ratio. This will require the following further entries:

a)     If it shows profit:

Joint Venture A/c Dr.

To Profit & Loss A/c

(His own share)

To Co-venturers' Personal A/cs

(Individually for their shares)

b)     b) If it results in loss:

Profit & Loss A/c Dr.

(His own share of loss)

Co-venturers' Personal A/cs Dr.

(Individually for their shares)

To Joint Venture A/c

 

After closing the Joint Venture Account, we have to find out the ainount due to other co-venturers. When this amount is sent to them, we record the following entry.

Co-venturers' Personal A/cs. Dr.

To Cash/Bank A/c

 

Look at illustration 1, it slows the journal entries as well as the different accounts in the ledger of the co-venturer who is recording the transactions relating to the joint venture 8 business in his books.

 

Illustration 1

Rajesh and Suresh entered into a contract to construct a building for Rs. 4, 00.000. Rajesh and Suresh contributed Rs. 2, 00,000 and Rs. 1, 50,000 respectively. 'They agreed to share. Profits and losses in the ratio of 4:3. It was decided that the work will be looked after by Rajesh who will be paid 5% commission on contract price in addition to his share of profits. Rajesh purchased the necessary materials Rs. 3.20,000 and paid Ks. 9.000 for expenses. Rajesh also contributed building materials from his own stock worth Rs. 20,000. Rs. 5,000 remained to be paid for wages.

 

Suresh took over the stock of materials for an agreed valuation of Rs. 16,000. The building was completed and the contract money was duly received.

 

Record the above transactions in the books of Rajesh and show the Joint Venture Account and Suresh's Account assuming that the outstanding wages were paid, by Rajesh.

In the Book of Rajesh
Journal Entries

Illustration 2

Anand and Prakash entered into a joint venture agreement to share the profits and losses in the ratio of 2: I. Anand supplied goods worth Rs. 60,000 to Prakash sad incurred expenses amounting to Rs. 2,000 for freight and insurance. During transit the Bods costing Rs. 5,000 were damaged and a sum of Rs. 3,000 was received from the incurrence company. Prakash reported that 90% of the remaining goods were sold at a profit of 30% of their original cost towards the end of the venture, il fire damaged the balance stock lying unsold with Prakash. The goods were not insured and Prakash agreed to compensate Anand by paying in cash 80% of the aggregate OF the original cost of such goods, plus propionate expenses incurred by Anand. Apart from the joint venture share of profit, Prakash was also entitled to a commission @ 5% on net profits of the joint venture after charging such commission. Selling expenses incurred by Prakash totaled Rs. 1,000. Prakash had letter remitted an advance of Rs. 10,000. Prakash paid the balance due to Anand by a bank draft. You are required to prepare the Joint Venture Account, and Prakash's Account 10 Anand's books.

3 Abnormal loss on account of damage in transit relates to the joint venture. Hence no.' calculation is needed.