JOINT VENTURE ACCOUNT

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

1. 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.
2. The profit sharing ratios must be clearly defined
3. 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.
4. The arrangement is temporary in nature
5. No specific and established law guides the activities of joint venture.

Differences between Joint venture and Partnership

Basis	Joint ventures	Partnership
Period	Temporary	Permanent
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
Responsibilities of	–	–
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

ACCOUNTING PROCEDURE

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:

NOTE

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.

Summary

• 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.

Assignment

Page 323 question 1