Separate set of Books

 13.5.4 Separate set of Books

So far you have studied the methods of recording joint venture trairsactions where no separate set of books were maintained. Now we shall study another method where Co- ventures agree to keep separate set of books for recording the joint venture transactions. When separate set of books are maintained, the joint venture trairsactions are recorded as a separate accounting entity on the basis of double entry principles. Under this method the following accounts are opened:

1 Joint Bank Account

2 Joint Venture Account

3 Personal accounts of each co-venturer

Joint Bank Account is a real account like the ordinary Rank Account. All the co-venturers pay or deposit their contribution in this account, The Joint Venture Account is like a profit and loss account which shows all the expenses and incomes of the joint venture. The personal accounts of the co-venturers simply show their contributions in the form of goods, cash or expenses and the amounts received by them.

Let us now see the various journal entries which are normally recorded under this method.

1 When co-venturers contribute their share of capital:

Joint Bank A/C Dr.

To Co-Venturers’ Prosomal A/C

2 When n co-venturer contributed in the form of goods:

Joint Venture A/c Dr.

To Co-venturer's Personal A/c

3 When purchases are made for joint venture:

a) If on cash:

Joint Venture A/c               Dr.

To Joint Bank A/c

b) If on credit:

Join Venture A/c                 Dr.

To Creditor's Personal A/c 

Note that when goods are purchased for the joint venture business, you will debit the joint venture Account not the Purchases Account,

4 When expenses are incurred on account of joint venture:

a)     If paid out of Joint Bank Account

Joint Venture A/c               Dr

To Joint Bank A/c

b) If paid by a co-venturer

Joint Venture A/c   Dr.

To Co-venturer's Personal A/c

The same entry is passed in case of bad debts. Look at Illustration 6 and see how the concerned accounts are prepared when separate sct of books are maintained for the joint venture business.

Illustration 6

Vikas and Salil entered into a joint venture to construct a building for a joint stock company. The contract price was settled at Rs. 25 lakh, payable Rs. 20 lakh in cash and the balance in the form of fully paid equity shares of the company. They opened a Joint Bank Account wherein Vikas deposited Rs. 6 lakh and Salil paid in Rs. 3 lakh. They agreed to share the profits and losses in the ratio of 2: 1.

They purchased materials for Rs. 3 lakh for cash and Rs. 10 lakh worth on credit from Anil. ‘They paid Rs. 4,50,000 for wages, etc., and Rs. 70,000 for other expenses. Vikas and Salil supplied materials worth Rs. 2,00,000 and Rs. 80,000 respectively. Architect's fees of Rs. 10,000 was paid by Vikas. The contract was duly completed and the price received as stipulated. Anil was paid Rs. 9,80,000 in full settlement. Vikas agreed to take up the shares of the company at a valuation of Rs. 4,40.000. Salil took over the remaining material at an agreed value of Rs. 70,000.

Separate books are maintained for joint venture business. Prepare the necessary ledger accounts.

Underwriting of Shares: Let us now take an illustration where the co-venturers agreed to underwrite the shares or debentures of a limited company. Underwriting means agreeing to buy shares that are not subscribed by the public. For this service they receive some commission which may be paid partly in the fonn of shares of the company and partly in cash. The shares thus received are sold to the public or taken over by the co-venturers an agreed price. Look at illustration 7and see how accountants are prepared for the joint venture of underwriting the shares when separate set of books are maintained.

Illustration 7

A and B enter into a joint venture to guarantee the subscription at par of 1,00,000 shares of Rs. 10 each of a limited company, and sharing profits and losses in the ratio of 2:3. The terms with the company are 4/1 % commission payable in cash and 6.000 fully paid shares of the company. They agreed to pay expenses in connection with the issue of shares. The expenses incurred are advertisement Rs. 5,000; printing rind stationery Rs. 1,000 and postage Rs, 600. All expenses are paid by A. The public subscribed to 88,000 shares only. The remaining shares under the agreement were duly taken up by A and B who provicled the necessary cash equally. The commission is received in cash and is shared by the co- venturers in-the ratio 4.5. The entire holding of the joint venture is then sold in the market through brokers as follows: 25% at a price of Rs. 9 per share; 50% at k price of Rs. 8.75 per share. 15% at a price of Rs. 8.50 per share, and the remaining 10% is taken over by A and B equal at y at an agreed price of Rs. 8 per share. Prepare the Joint Venture Account. Joint Bank Account, Shares Account. And the accounts of A and B showing the final settlement.

Working Notes

C: heck Your Progress-C

Q-1 what is the need for maintaining separate set of books for the joint venture?

2 Fill in the blanks:

i)                   Joint Bank Account is like a.................. Account.

ii)                 When co-venturers' contribution is in the form of goods.................. Account is debited.

iii)               All the amounts paid out of joint bank are credited to.................... Account.

iv)               Co-Venturers' contribution in cash is debited to Joint Bank Account and credited to ' .................... Account.

v)                 In underwriting of shares, the.................... Shares are taken over by the underwriters.