Meaning of Joint Ventures
It is a form of business involving two or more persons, firms joining together with the aim of making profit over a specified period of time without any further business venture.
Parties involved in a joint venture business are known as venturers.
Main characteristics of Joint venture
For the fact that joint venture is temporary in nature, the following are its features
- No separate books are kept to record the transactions each venturer records transactions in his own books in his own part of the enterprises in normal accounting records.
- The profit sharing ratios must be clearly defined
- The capital, activities and scope of the ventures must be laid down, e.g. one venture buys and other sells, but both must make a contribution to the progress of the ventures.
- The arrangement is temporary in nature
- No specific and established law guides the activities of joint venture.
Differences between Joint venture and Partnership
|Regulation||Non – regulation by law||Regulated by partnership act|
|Status of parties||Venture||Partner|
|Nature of agreement||Oral and / or implied||Oral / written|
|Nature of activities||One – offer once||Continuous|
|Parties||All are involved||All may not be involved|
|Accounting record sheet Amount invested||Memorandum and individual account Venture funds||Trading, profit and loss accounts and balance sheet capital|
|Types of business||Not applicable to all business||All business|
|Accounting periods||For the period of the venture business||For every fiscal year|
Each ventures opens an account to record all transactions that concern him. This account is usually tagged “Joint Venture / with the name of the other party to the venture”
The accounting records in each book are as follows:
1. The memorandum account does not form part of the double entry, but is a mere summary book of all the transactions among the ventures and to ascerform profit or loss on the venture.
2. If profit is made; DR venture account and CR profit and loss account of each venture.
3. If loss is made; DR profit and loss account and CR venture account
4. When all these entries have been made, the balances remaining on the various joint venture account will show the indebtedness of one venturer to another.
- A joint venture is simply a venture undertaken jointly by two or more persons or firms with a view to make profit.
- Joint venture is different from partnership in that it is more a temporary character. It is often concerned with one isolated transaction, such as buying up bankrupt stocks.
- Each venturer opens an account to record all members’ matters which concern the particular venture and this account is described as joint venture with the name of other venturer.
- A statement of operation for the venturer’s activities prepared is called memorandum joint venture account.
- Joint venture business is on – off business and not permanent in nature.
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