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.
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.
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