13.0 OBJECTIVES
- After studying this unit you should be able to:
- Explain the meaning and importance of a joint venture
- Distinguish joint venture from partnership and consignment
- Record joint venture transactions in the books of one venturers
- Record joint venture transactions in the books of all venturers
- Prepare Memorandum Joint Venture Account
- Prepare separate set of books for the joint venture business
13.1
INTRODUCTION
In Unit 10, 1 1 and 12 you have studied how various transactions related to the consignments are recorded in the books of the concerned parties. The Basic objective of preparing the Consignment Account is to ascertain the profit or loss on each consignment. Similarly, when some persons join hands to carry out a specific job or a project (called joint venture), each person (called co-venturer) would like to ascertain his share of profit or loss from the joint venture business. For this purpose they record the transactions related to the joint venture business in their own books or prepare a separate set of hooks altogether. In this unit you will learn how various transactions related to the joint venture business are recorded when separate set of books are prepared and when the co-venturers deride to record them in their own books whiteout preparing a separate set.
13.2 WHAT IS A JOINT VENTURE?
When two
or more persons join together to carry out a specific business venture and
share the profits on an agreed basis it is called a 'joint venture'. Each one
of them who join as a party to the joint venture is called 'Co-venturer'. No
Finn name is normally used for the joint venture business because its duration
is limited to a short period. During this period, the 5d co-venturers are. Free
to carry on their own business as usual. unless agreed otherwise. The business
relationship amongst' the co-venturer comes to an end as soon as the venture is
completed. The joint ventures are quite common in construction business,
consignment, sale and purchase of property, underwriting of shares and
debentures, etc. For example, A and B agreed to construct a college building
for which they pooled their resources and skill. A provided Rs. 6 lakh and B
Rs. 4 lakh as capital. They completed the building and shared the profits in
the ratio of their contributions to capital. In this example, joining hands by
A and B to construct a building is a joint venture. A and B are co-venturers.
They will share the profits in the ratio of 6 and 4 (same as the ratio of their
capitals).
From the above discussion the essential features of a joint venture can be listed as follows:
1 It is
formed by two or more persons.
2 The
purpose is to execute a particular venture or project.
3 No
specific firm name is used for the joint venture business.
4 It is of
a temporary nature. Hence, the agreement regarding the venture autocratically,
Stands terminated as soon as the venture is completed.
5 The
co-venturers share profit and loss in the agreed ratio. However, in the absence
of any other agreement between the co-venturers, the profits and losses are to
be shared equally.
6 During the tenure of .joint venture, the co-venturers are free to continue with their own business unless agreed otherwise.
The main advantages of joint venture are:
1 -
Sufficient Resources: Since two or more persons pool their resources, there is
sufficient capital available:
2 -
Ability and Experience: In joint venture the different venturers may be having
different skills and experience. he benefit of their common wisdom will be
available to the venture.
3 - Spreading of Risk: The co-venturers agree to share the profits ilnd losses in a particular ratio. This implies that the risk is also borne by them in that ratio.
13.3 JOINT VENTLTRE AND CONSIGNMENT
Even though both consignment and joint venture are in the nature of an agreement between different parties, there are many points of difference between the two. The main points of difference are as follows:
|
Consignment |
Joint Venture |
|
1 Normally
two persons are involved, The consignor and the consignee.
2 The
relationship between The consignor
and the consignee is that of principal
and agent.
3 The
arrangement nlay continue for a long time.
4 The funds
are provided by the Consignor.
5 The
consignee acts merely as an agent and he
has to follow the Instructions
of the consignor.
6
Consignment is generally concerned With the sale of movable goods.
7 The profit
belongs to the consignor only. The consignee is entitled only to his
commission.
8 The
consignor owns the goods.
9 There is
only one method of maintaining
the accounts for Consignment
transactions. |
Number
co-venturers is usually two, but it may also be more than two.
The
relationship between co-venturers is that of' partnership.
The
relationship comes to an end as soon as the venture is completed.
All the
co-venturers contribute to a conman pool.
The
co-venturers have equal authority to take decisions.
Joint
venture may be for sale of goods or for carrying on any other activity like
construction of building, investment in shares, etc.
The profit
is shared by all the co-venturers.
There is
joint ownership.
There are
four methods of maintaining accounts for the joint venture. |
13.4 JOINT VENTURE AND PARTNERSHIP
Though joint venture is in the nature of a temporary partnership but in
the strict legal sense it is not a partnership. Both in joint venture and
partnership some business is carried on by two or more persons and the profits
are shared by all of them. But, there are some basic differences between the
two. They are as follows:
|
Partnership |
Joint Venture |
|
1 A
partnership firm always has a Name.
2 It is of a
continuous nature. 3 Separate
set of books have to be maintained.
4 No partner
can carry a similar business.
5 Though the
registration of partnership is not compulsory but it is considered desirable.
6 A minor
can also be admitted to the benefits of the firm. |
There is no
need for name.
It comes to
an end as soon as the work is completed.
There is no
need for a separate set of books, the accounts can be maintained even in one
of the co-venturer's books only.
The
co-venturers are free to carry on the business of a similar nature.
There is no
need for registration at all. A minor
cannot be a co-venturer as he is incompetent to enter into a contract. |
CHECK YOUR PROGRESS-A
1 - A & B enter into a joint venture for the construction of a building. They contributed Rs. 2, 00,000 and Rs. 3, 00,000 respectively. They agreed to share the profits or losses in the ratio of their contribution to capital. The profit for the joint venture is Rs. 45,000. State (i) the names of the co-venturers, and (ii) each co-venturer’s, share of profit.
2 - State
whether each of the following statements is true or false.
- A joint venture is a partnership formed under the Indian Partnership Act.
- A Joint venture has a definite life.
- Joint venture is the same thing as consignment.
- Joint venture agreement must be registered.
- Co-venturers share the profits in the agreed ratio
13.5 ACCOUNTING TREATMENT
Broadly
speaking, accounts of a joint venture business can be kept in any one of the
following four ways:
1 - In the books of one co-venturer: In case the business is not very
large, only one of the venturers may be entrusted with the task of recording
the transactions in his books. In that case all other co-venturers will send
their contributions to such venturer and he will open a Joint Venture Account
and the personal accounts of other co-venturers in his books.
2- In the books of ail the co-venturers: When all co-venturers are
working actively, each one of them shall open a Joint Venture Account and the
personal accounts of other Co-venturers in his books. In such a situation, each
co-venturer informs others about the transactions undertaken by him so that
they can incorporate them in their books.
3 - Memorandum Joint Venture Account: Sometimes each co-venturer
records only such transactions as are directly concerned with him. In that case
he cannot work out the profit or loss because his books do not include all
transactions of the joint venture. Hence, for calculating the profit or loss of
the joint venture, a Memorandum Joint Venture Account has to be prepared by
incorporating alI transactions related to the joint venture. Thereafter the
Joint Venture Account is completed and closed.
4 - Separate Set of Books: Sometimes, for the sake of convenience, a
separate set of books are maintained for the joint venture. Under this system a
Joint Bank Account, a Joint Venture Account and the personal accounts of all
the co-venturers are to be opened in 'the independent set of books of account.
Let us now study these methods one by one in detail.
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