CMA INTERMEDIATE || JOINT VENTURE || NOTES

Study Notes Of Financial Accounting 

 JOINT VENTURE

Meaning of joint venture

When two or more persons join together for a specific business it is know as joint venture. It is coming into existence for a limited purpose. The partners in the joint venture are called co-ventures. 

Features of joint venture 

• Two or more persons join together for a single venture
• These partnership ends on completions of venture.
• They share profit or losses in agreed ratio
• Interest on capital, salary to any co-venture may be paid in agreed ratio.

Methods of Accounting Treatment

There are three methods of maintaining books of  Accounts

1. When Separate sets of books are maintain
2. When separate sets of books are not maintain
3. Memorandum joint venture method

When Separate sets of books are maintain

Following Accounts are maintain in this method

• Joint venture account
• Joint bank account
• Personal account of co-venture

When separate sets of books are not maintain

Following Accounts are maintain in this method

• Joint Venture account
• Personal account of other co-venture

Memorandum joint venture method

Following Accounts are maintain in this method

• Memorandum Joint Venture Account
• Joint Venture With Other Co-venture Account

Some Important Points to be Remember Related to Joint Venture Chapter

• Joint venture is a nominal accounts its shows revenue and expenses
• Co-venture account is a personal account
• joint bank account is a personal account 
• Memorandum joint venture is a Nominal account
• All expenditures(expense/assets) is treated as an expense
• All receipts are treated as Income
• No treatment of goods lost by fire/theft/or normal loss
• no entry is made in transferring goods from one co-venturer to another co-venturer
• If any compensation agreed to be paid by any co-venture due to his fault/negligence is treated as income of the joint venture
• Drawings/insurance claim received is also treated as income 

Joint Bank accounts shows receipt and payment of cash

Joint Venture accounts shows purchase of goods, expenses, sales of goods etc.

Personal accounts of co-venture accounts shows investments, entitlements, receipts drawings by co-venture

MCQ Practice Question Of Joint Venture

• ram and shyam purchase a piece of land for Rs 40000 and sold it for Rs 60000. originally ram contributes Rs 24000 and shyam is contributes Rs 16000. What is the profit on venture?

a) 32000      b) 25000     c) 20000       d)21000

• Sita  Purchased goods costing 42500. Geeta solds goods of 40000 at 50000. balance goods were taken over by sita at same gross profit percentage as in case of sale. the amount of goods taken over will be

a) 2500      b) 3125     c) 4500       d)2000

• Which of the following statement is true

a) consignment and joint venture is same

b) There is not separate act for the joint venture

c) There is no difference between joint venture and partnership

d) In case of joint venture the number of third party is none only

• If unsold goods Costing Rs 20,000 is taken over by venture at RS 15,000. the joint venture account will be credited by

a) 18000          b) 20000             c)15000               d)5000

• For opening joint bank account, in case of separate  sets of books

a) Venture a/c will be debited and venture a/c will be credited

b) Joint bank a/c is debited and venture capital a/c is credited

c) Joint venture a/c is debited and joint bank a/c is credited

d) Joint bank a/c is debited and Joint venture a/c is credited

• Can a minor be admitted into a joint venture?

a) Can be admitted

b) Cannot be admitted

c) can be admitted subject to the consent of the co-venture

d) Can be admitted for the benefit of minor

• If a co-venture takes away the goods under memorandum joint venture method the he will debit these goods in his books to 

a) Joint venture account      b) Personal a/c     c) Purchase a/c         d) Sales a/c

• Ram bought goods of the vale of Rs 10000 and consigned them to Mohan to be sold them on a joint venture, profits being divided equally, Ram paid Rs 1000 for frieght and insurance. Ram draw a bill on Mohan for Rs 10000. Ram got it discounted at Rs 9500. Mohan sold the goods for Rs 15000. commission Payable to Mohan Rs 500. The Amount to be remitted by Mohan to ram will be

a)  12500               b)  3000              c) 15400         d)12000

• Which of the following statement is not true

a) Joint venture is a going concern

b) Joint venture is terminable in nature

c) Joint venture does not follow accrual basis of accounting

d) The co-venture shares the profit in agreed ratio

• Which of the following statement is true

a) When separate sets of books is maintained, expenses paid by venture will be credited to joint bank account 

b) When separate sets of books is maintained, expenses paid by venture will be credited to venture's capital account

c) When separate sets of books is maintained, expenses paid by venture will be credited to joint venture account

d) When separate sets of books is maintained, expenses paid by venture will be credited outstanding expenses account

• Joint venture is what type of account

 a) nominal account

 b) real account

 c) personal account

 

• Memorandum Joint venture account is what type of account

  a) nominal account

 b) real account

 c) personal account

Case Study

A joint venture agreement was enter into rohan and sohan to share the profit & losses in 2:1 . rohan supply goods worth Rs. 1,20,000 to sohan and incurred expenses rupees to 4,000 for freight and insurance. During transit good costing Rs. 10,000 got damaged and a sum of rs. 6000 was recovered from the insurancep company. Sohan reported that 90% of the remaining goods sold at profit of 30% of their original cost. At the end of venture, a fire occurred as a result the balance inventories lying unsold with Sohan was damaged. The goods were not insured and Sohan agreed to compensate Mohan by paying 80% aggregate value in cash amounting of original cost of such goods plus proportionate expenses incurred by rohan. Apart from the share of profit of sohan was also entitled to commission of 5% of net profit of joint venture after charging such commission as per agreement.

Selling expenses incurred by sohan total rs2000 sohan has earlier remitted and advance of rs20,000. sohan dually paid the balance due to mohan by bank draft.

Prepare joint venture account  and sohan account in the books of mohan

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