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:

  1. It is short duration  special  purpose  partnership. Parties  in venture are called co-venturers.
  2. Co-venturers may contribute funds for running the venture   or   supply   stock   from   their   regular business
  3.  Co-venturers share profit/loss of the venture at an agreed ratio likewise partnership.
  4.  Generally profit/loss of the venture is computed on completion of the venture.
  5.  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 Joint Venture Partnership
Scope It is limited to a
specific Venture.
It is not limited to 
specific venture.
Persons involved The personscarrying on
business are called co- venturers.
The persons carrying
on business are individually
called partners.
Ascertainment 
of profit/loss
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
Act governing No specific Act is there. Governed by Partnership Act
. Name     There is no need for firm name A partnership firm always has a name.
Separate set
of Books
There is no need for a  separate
set of books. The accounts can be
maintained even in one of the
Coventurer Books
Separate set of
books have to be maintained.
Admission of
Minor
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   Accounting for joint venturer is
done on liquidation basis.
Accounting for partnership
is done on going concern basis.
Competition    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:

  1.  When separate set of books are maintained.
  2.  When  no separate set  of  books  are maintained.
  3.  

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:

Accounting entries for Joint venture

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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