Recording in the Books of all. Co-venturers
Under the second method, all transactions relating
to the joint venture are recorded in the books of all the co-venturers. In
order to complete the Joint Venture Account in the books of all co-venturers,
each co-venturer sends the necessary information about his dealings to the
other co-venturers. There is not much of a difference in the recording of
transactions berween the first and the second method. We will be having similar
entries in the joint venture accounts in each co-venturer's books who shall all
open the personal accounts of other co-venturers. Look at Illustration 3 to
clearly understand the recording of transactions under the second method.
Illustration 3
Arvind and Babloo entered into a joint venture
agreeing to share profits and losses equally. The following transactions took
place during the course of venture:
Rs.
Arvind bought goods for cash 2,550
Babloo bought goods for cash 7,000
Arvind paid storage charges 500
Babloo paid freight and insurance 800
Babloo sold goods for cash 7000
Babloo received 3% commission on sales 210
Sales made by Arvind 5,000
Commission payable to Arvind 150
Babloo took over the unsold stock 560
Prepare the necessary ledger; accounts in the book of Arvind and Babloo assuming that the accounts are finally settled between them.
13.5.3
Memorandum Joint Venture Account Method
In 1he
method discussed above each co-venturer records all transactions relating to
the joint venture in the Joint Venture Account opened in his books, But. Uncle:
the Memorandum Joint Vcnture Account Method each co-venturer will record only
those transactions relating to the joint venture which are directly concerned
with him, and not those of others. Under this method each co-venturer opens a
Joint Venture Account including the name of the other co-verlturer. For
example, if A and B are partners in a joint venture, then in the books of A it
will be termed as 'Joint Venture with B account' and in the books of B it will
be termed its 'Joint Venture with Account': Each co-venturer will record only
such transactions which are actually effected by him. For example, if goods are
purchased by A for the joint venture, it will be recorded only by A and not by
other co-venturers. Similarly, if goods are sold by B, it will be recorded in
the books of B only. This account is in the nature of a personal account and,
therefore, will not disclose the profit or loss of the venture. For that
purpose. We prepare an additional account called 'Memorandum joint Venture
Account'. This is like profit and Loss Alc.
Let us
say A and B enter into a joint venture and certain transactions have taken
place for which the following entries will be passed in each co-venturer's
books.
As stated earlier, for ascertaining the profit or loss on the joint venture, we prepare a Memorandum Joint Venture Account. This account is prepared exactly on the pattern of Profit & Loss Account. Since this account does not form pan of the double entry system, the word 'Memorandum ' is prefixed.
The method of preparing [his account is vcry simple. It is prepare11 on the basis of .information supplied by all the co-venturers. The debit entries appearing in the personal accounts of all co-venturers are written on the debit side of the Memorandum Account and the entries appearing on the credit side of those accounts are shown on the credit side of the Memorandum Joint Venture Account. However, you should remember that the transactions which do not relate to an item of expense or income are to be excluded from this Memorandum Account. The difference in the totals of the debit side and the credit side represents profit or loss. The profit or loss thus calculated is then shared by the co-venturers in the agreed profit sharing ratio.
Each
co-venturer will record only his share of profit or loss. In the event of
profit, the entries shall be:
In the
books of A.
Join
Venture 'with B A/c Dr.
To
Profit & Loss A/c
In the books of B.
Joint
Venture with A A/c Dr.
To Profit & Loss A/c
.
In the event of Loss. The
entries shall be reversed as follows:
In the books of A
Profit
and Loss A/c Dr.
To
Joint Venture with B A/c
In the books of B
Profit
and Loss A/c Dr.
To Joint Venture with A A/c
In the end each venture balances the 'Joint Venture with .................... Account' in his books and settles the account by paying or receiving cash. Look at Illustration 4 carefully to understand the Memorandum Joint Venture Account Method.
Illustration 4
Prem of Delhi and Satish of
Calcutta entered into a joint venture for the purchase and sale of goods. The profits
and losses are to be shared in the ratio of 2
Prem purchased goods for Rs. 40,000 and sent them to Satish paying Rs. 3,000 for freight and insurance. Prem also incurred sundry expenses amounting to Rs. 400. Satish sold goods for Rs. 55,000 and incurred Rs. 6,000 as expenses. Unsold stock valued at Rs. 7,000 was taken over by Satish. Satish remitted the balance due to Prem by a bank draft.
Each party's ledger contains
a record of his own transactions in the Joint Venture
Account. Prepare (a)
Memorandum Joint Venture Account, (b) Joint Venture with
Satish's Account in Prem's
ledger, and (c) Joint Venture with Prem’s Account in
Satish's ledger.
Solution
Interest
in Joint Venture Transactions: When the co- Venture invest money in joint
venture bushes\ and receive back the amounts on different dates, ir is quite
usual for them to agree to calculate interest at a certain rate. Each
co-venturer is entitled to receive interest on the amounts invaded by him and
pay interest on the amounts received by him. You should remember that only the
net interest receivable from, or payable to, the co-venturer is recorded in the
Joint Venture Account. Thus, the net amount of interest is also taken into
account before ascertaining the profit or loss on joint venture. For
clarification look at illustration 5.
Illustration 5.
Anand and Bimal enter into joint venture sharing profits and losses equally. Anand purchased goods for Rs. 5,000 for cash and Bimal spent Rs. 1,000 on freight, etc., on January I, 1988. On the same day, Bimal bought goods for Rs. 10,000 on credit. Further expenses were incurred as follows:
Expenses
were incurred as follows:
On 1-2- 1988 Rs.
1,000 by Bimal
On 1-3- 1988 Rs.
500 by Anand
Sales
were made by each one of them as follows:
15-1-1988 Rs. 3,000 by Anand
31-1-1988 Rs. 6,000 by Bimal
15-2-1988 Rs. 3,000 by Anand
1-3-1988 Rs. 4,000 by Bimal
Creditors
for goods were paid as follows:
1-2-1998 Rs. 5,000 by Anand
1-3-1988 Rs. 5,000 by Bimal
On March 31, 1988 the balance of stock was taken over by Bimal at Rs. 9,000. The accounts between the co-venturers were settled by cash payment on this date. The co-venturers are entitled to interest at 12% per annum. Prepare necessary ledger accounts in the books of venturers as per Memorandum Joint Venture Account Method.
Solution:
Check Your Progress-R
1 Put a tick (Right) in the box for the right answer.
a) The goods
supplied from his stock at cost by the co-venture maintaining the accounts. Are
debited to.
i) Sales Account
ii) Purchases Account
iii) Stock Account
b) In Memorandum
Joint Venture Account Method, the co-venturer records
i) His
transactions only.
ii) Other
co-ventures’ transactions only
iii) All the
transactions of the Joint venture
c) Memorandun1 Joint
Venture Account is prepared to find out
i) Amount due from the co-venturers
ii) Profit or loss on the joint venture
iv) One of the above
d) The share of
profit of the co-venturer maintaining the records is credited to
i) Profit and
LOSS Account
ii) His personal
account
iii) None of the
above
e) Any bad debts
incurred on account of joint venture are debited to
i) Bad Debts Account
ii) Debtor's Personal
Account
iii) Joint Venture
Account
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