Maintaining Separate books for Joint Venture

When two or more parties engage in a joint venture, they may decide to maintain separate books of accounts to record the financial transactions of the venture. This method ensures clarity in recording transactions, sharing profits or losses, and tracking contributions made by each party. Separate books are particularly useful for larger ventures involving significant investments, multiple transactions, or a long duration.

Features of Maintaining Separate Books:

• Joint Bank Account:

A joint bank account is opened to record all cash transactions, including contributions by co-venturers, payments for expenses, and receipts from sales or services.

• Joint Venture Account:

This account is used to record all transactions related to the joint venture, such as expenses incurred, revenues earned, and the profit or loss from the venture.

• Co-Venturers’ Accounts:

Separate accounts for each co-venturer are maintained to record their contributions, withdrawals, and share of profit or loss.

Steps in Maintaining Separate Books:

• Opening a Joint Bank Account:

Each co-venturer contributes their share of initial capital, which is deposited in the joint bank account. The account is then used for all cash transactions during the venture.

• Recording Expenses:

All expenses related to the venture, such as purchase of goods, wages, and other overheads, are paid through the joint bank account and recorded in the joint venture account.

• Recording Revenues:

Any income or revenue earned from the joint venture operations is deposited into the joint bank account and recorded in the joint venture account.

• Distribution of Profit or Loss:

After determining the profit or loss of the joint venture, it is transferred to the co-venturers’ accounts in their agreed ratio.

• Settlement:

Upon completion of the joint venture, the remaining cash balance in the joint bank account is distributed to the co-venturers after settling any outstanding liabilities.

Example

A and B enter into a joint venture to sell imported electronic gadgets. They agree to share profits and losses equally. Below are the transactions during the venture:

1. Initial Contribution:
   • A contributes ₹1,00,000.
   • B contributes ₹1,00,000.
2. Expenses Incurred:
   • Goods purchased for ₹1,50,000.
   • Transportation expenses of ₹10,000.
   • Advertising expenses of ₹20,000.
3. Revenue Earned:
   • Total sales amount to ₹2,20,000.
4. Profit Distribution:
   • The profit is shared equally between A and B.

Journal Entries

Profit Calculation

Each co-venturer’s share of profit = ₹40,000 ÷ 2 = ₹20,000

Ledger Accounts

1. Joint Bank Account

2. Joint Venture Account