What is Accounting for Joint Venture?

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.

Method of Accounting

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.

1.      Without keeping separate set of books or without keeping 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.

Review of theoretical concept

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.