Joint Venture Accounts and Methods of Accounting
MEANING OF JOINT VENTURE
A Joint Venture is a very short duration “business” (generally, confined to a single transaction, like, buying some surplus stores and selling them) entered into by two or more persons jointly. Joint Venture may be described as a temporary partnership between two or more persons without the use of the firm name, for a limited purpose.
Venture may be for the construction of a building or a bridge, for the supply of certain quantity of materials or labour and even for the supply of technical services. The persons who have so agreed to undertake a Joint Venture are known as ‘Joint Venturers’ or ‘Co- Venturers’.
FEATURES OF JOINT VENTURE ACCOUNT
Some important features of joint venture business are as follows:
- It is short duration special purpose partnership. Parties in venture are called co-venturers.
- Co-venturers may contribute funds for running the venture or supply stock from their regular business
- Co-venturers share profit/loss of the venture at an agreed ratio likewise partnership.
- Generally profit/loss of the venture is computed on completion of the venture.
- Going concern assumption of accounting is not appropriate for joint venture accounting. There does not arise problem of distinction between capital and revenue expenditure. Plant, machinery and other fixed assets when used in venture are first charged to venture account at cost. On completion of venture such assets are revalued and shown as revenue of the venture. Thus accounting approach for measurement of venture profit is totally different.
DISTINCTION OF JV WITH PARTNERSHIP
Joint Venture differs from Partnership in the following respects.
|Basis of Distinction
|It is limited to a
|It is not limited to
|The personscarrying on
business are called co- venturers.
|The persons carrying
on business are individually
|The profits/losses are ascertained at
the end of specific venture (if venture
continues for a short period) or on
interim basis annually (if venture
continues for a longer period).
|The profits/losses are ascertained
onan annual basis
|No specific Act is there.
|Governed by Partnership Act
|There is no need for firm name
|A partnership firm always has a name.
|There is no need for a separate
set of books. The accounts can be
maintained even in one of the
|Separate set of
books have to be maintained.
|A minor cannot be a co- venturer
as he is incompetent to contract.
|A minor can be admitted
to the benefits of the firm.
|Accounting for joint venturer is
done on liquidation basis.
|Accounting for partnership
is done on going concern basis.
| It is a rule rather than exception that
chances of co-venturers in the
competing business are very high.
|Partners generally do not
involve in competing business.
METHODS OF MAINTAINING JOINT VENTURE ACCOUNTS
Co-venturers can maintain the accounts for joint venture in the manner that suits them in a particular situation.
Generally there are two ways to keep records of joint venture:
- When separate set of books are maintained.
- When no separate set of books are maintained.
WHEN SEPARATE SET OF BOOKS ARE MAINTAINED
When size of the venture is fairly big, the co- venturers keep separate set of books of account for the joint venture. Joint venture transactions are separate from their regular business activities. In the books of Joint Venture the following accounts are opened.
(i)Joint Bank Account.
(ii)Joint Venture Account.
(iii)Personal Accounts of the Co-venturers or Co-venturers’ Accounts.
(i) Joint Bank Account:
the co-venturers open a separate bank account for the venture transactions by making initial contributions. The bank account is generally operated jointly. Expenses are met from this Joint Bank Account. Also sales or collections from transactions are deposited to this account. However, sometimes the co-venturers may make direct payments and direct collections. on completion of the venture the Joint Bank Account is closed by paying the balance to co- venturers.
(ii) Joint Venture Account:
This account is prepared for measurement of venture profit. This account is debited for all venture expenses and is credited for all sales or collections. Venture profit/ loss is transferred to co-venturers’ accounts.
(iii) Co-venturers: Accounts: Personal accounts of the venturers are maintained to keep record of their contributions of cash, goods or meeting venture expenditure directly and direct payment received by them on venture transactions. This account is also closed simultaneously with the closure of joint bank account.
WHEN NO SEPARATE SET OF BOOKS ARE MAINTAINED
When no separate set of books of account are maintained for joint venture, each venture maintains accounts independently for the venture transactions. The standard practice is to keep full records of own transactions as well as transactions of the co- venture relating to the venture. But sometimes the parties to a venture keep record of their own Transactions only. In that case a Memorandum Joint Venture Account is prepared by the parties.
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