Accounting for Joint
Venture
Concept
When two or more person or firm
run a business venture for specific purpose and for temporary period, then it
Is called a joint venture. It is an association of two or more than two person or
parties who have combined for the execution of a specific transaction and
divide profit or loss thereof in the agreed ratio. In other words, a joint
venture is some kind of temporary trading relationship between two or more
parties who undertake jointly to carry out a specific venture such as
construction of road, bridges, housing complex, underwriting of share and
debentures etc. the parties to the joint venture may be individual sole trader,
partnership firm or companies or any combination of these and they are called
covertness.
A joint venture is a temporary
nature of partnership for specific purpose and period; therefore, a firm's name
is not usually used. When a venture is completed, the trading rations hip
between covertness comes to end.
Characteristics or Features of joint ventures
The main features of joint
ventures are:
- It is temporary partnership for a specific period and purpose.
- The joint venture business is dissolved after completion of its transactions and specific task.
- It has no specific name of the firm.
- Its members are called co-ventures.
- It is executed with called agreement among co-ventures.
- Profit or loss of the joint venture is distributed among all co-ventures in agreed ratio.
- Profit or loss of the joint venture is distributed equally among the ventures in the absence of agreement.
- It is going concern, because its end or termination is certain.
Difference between joint venture and consignment
A joint venture is a temporary
partnership of two or more persons or parties combined for the completion of a
specific task. But, consignment means sending goods by owner to his agent for
sale on commission basis. Therefore, there are so many differences in between
consignment and joint venture:
Difference between Joint Venture and partnership
Joint venture is also a type of
partnership. But it is temporary in nature. These two are different in
following points.
Joint venture is a specific
partnership which is limited to a particular venture and it comes to end as
soon as the venture is accomplished or achieved. It is, therefore, necessary to
keep systematic accounting records to calculate the correct profit or loss I a
joint venture in fact the account are maintained by co-ventures according to
their convenience.
There are primarily two method of
keeping joint ventures accounts namely:
1. Without
keeping separate set of book or without keeping point bank system.
2. With keeping separate set of book or joint bank system.
2. With keeping separate set of book or joint bank system.
Under this method, co-ventures
record joint venture transactions separately in their own books of account.
This method is further divided into following two sub-methods.
- Recording of transactions in the books of one co-venture.
- Recording of transaction in the books of all co-ventures.
Thus, there are two individual
method of keeping a record of joint venture transactions and the same are being
explained one by one in the following pages.
a.
Recording
of transactions in the books of one co-venture: when joint venture records
are maintained at the place of business by one of the co-ventures who is
in-charge of the joint venture, then it is called 'Recording of transaction in
the books of one-venture'. This method is followed when most of the buying and
selling on account of joint venture is managed by one co-venture. In this case
entire work is entrusted to one of the ventures and the rest simply contribute
their share and place it at the disposal of the working ventures. So all the
transactions relating to joint venture are recorded by the co-venture, so
appointed in this books and he is usually allowed an extra remuneration out of
the profit for his services. Following main accounts are maintained by him.
1.
Joint
venture account: it is a nominal account in nature which show profit andloss made on the venture, it is prepared just like trading & profit and
loss account. This account is to be debited with expenses incurred and credited
with revenue earned. If debit is bigger the result shall be loss; if credit
side I bigger, the result shall be profit which is to be divided among
co-ventures in their agreed ratio.
2.
Co-venture's
account: it is a personal account in nature, which represents the amount
due by or due to him. As such, it is debited with share of loss ad credit with
amount invested by co-venture and his share of profit.
b.
Recording
of transactions in the books of all co-ventures: when all joint venture
transactions are recorded by all co-ventures in their own books of account
individually, then it s called 'recording of transaction in the books of all
co-ventures'. Under this method each co-venture will prepare two accounts
namely.
1.
Joint
venture account: it is debited with
anything each venture puts into joint ventures. Double entry is completed as
used to the venture's cash purchases, creditors account, etc. in respect of his
contribution and to the personal account introspects of the co-venture's
contributions and credited with anything each venture takes out of the joint
ventures. Double entry to complete to cash debtors, assets account, etc. in respect
of the ventures' withdrawals and to the current in respect of the co-venture's
withdrawals. This account disclosed the profit or loss on the venture which is
divided among to co-venture, double entry being to his own profit and loss
Account in respect of his share and to the personal account is respect of
co-venture's share.
2.
Personal
account: personal account is a record of transactions made by the
co-venture on account of joint venture. This account shows the amount due
to/from the co-venture an it is closed by setting the balance.
Notes: when there are more than
two co-ventures a separate personal account has to be maintained for each
co-venture.
What do you understand by a joint venture? State its main features.
When two or more personal or firm
run a business venture for specific purpose and for temporary period, then it
is called a joint venture. It is an association of two or more than two person
or parties who have combined for the execution of a specific transaction and
divide profit or loss thereof in the agreed ratio. In other words, a joint
venture is some kind of temporary trading relationship between two or more
parties who undertake jointly to carry out a specific venture such as
construction of road, birds, housing complex, underwriting of shares and
debentures etc. the parties to the joint venture may be individual sole trader,
partnership firm or companies or any combination of these and they are called
covertness.
A joint venture is a temporary
nature of partnership for specific purpose and period, therefore, a firm's name
is not usually used, when a venture is completed, the trading relationship
between co-venture comes to end.
State and five features of joint venture.
The main features of a joint
venture are:
a. It
is temporary partnership for a specific period and purpose.
b. The
joint venture business is dissolved after completion of its transactions and
specific task.
c. It
has no specific name of the firm.
d. Its
members are called co-ventures.
e. It
is executed with called agreement among co-ventures.
Differentiation between joint venture and partnership.
These two are different in
following points.
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ReplyDeleteAccounting for joint venture agreement is a process of determining the amount of profit and loss that will be recorded in a joint venture's financial statements. The accounting rules governing joint ventures are different from those governing corporations. A corporation may have an accounting system that is similar to that of its parent company, but it does not necessarily have the same accounting rules.
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