When Separate set of Books are not Maintained (Co-venturer keeps Records of Own Transactions, Memorandum Joint Venture A/c Method)

In many joint ventures, particularly small-scale or short-term ventures, separate books of accounts may not be maintained. Instead, each co-venturer records only their own transactions. At the end of the venture, they prepare a Memorandum Joint Venture Account to determine the profit or loss. This method is simpler and less formal, making it suitable for ventures with minimal transactions.

Features of the Memorandum Joint Venture Account Method:

• Individual Recording:

Each co-venturer records only their own transactions (e.g., personal contributions, expenses incurred, and revenue collected).

• No Joint Bank Account:

Transactions are carried out through the personal bank accounts of the co-venturers. No joint bank account is opened.

• Memorandum Joint Venture Account:

At the end of the venture, the co-venturers combine their individual records and prepare a Memorandum Joint Venture Account to ascertain the overall profit or loss.

• Profit Sharing:

The profit or loss determined through the Memorandum Joint Venture Account is shared among the co-venturers according to their agreed ratio.

Steps in Recording Transactions:

1. Recording by Each Co-venturer:
   Each co-venturer records only those transactions that they personally handle:
   • Contributions made by them.
   • Expenses incurred by them.
   • Revenue collected by them.
2. Preparation of Memorandum Joint Venture Account:
   At the conclusion of the venture, both co-venturers share their transaction details and prepare a combined Memorandum Joint Venture Account. This account is not part of the double-entry system but is used only to determine profit or loss.
3. Profit Distribution:

The profit or loss is distributed in the agreed ratio, and necessary adjustments are made in the personal accounts of the co-venturers.

Example

X and Y enter into a joint venture to sell furniture. They agree to share profits and losses equally. The following transactions take place:

1. X’s Transactions:
   • X purchases furniture for ₹60,000.
   • X pays ₹10,000 for transportation.
   • X sells goods for ₹1,00,000.
2. Y’s Transactions:
   • Y incurs ₹5,000 as advertising expenses.
   • Y sells goods for ₹40,000.

Preparation of Memorandum Joint Venture Account:

Profit to be shared equally:

• X’s share = ₹65,000 ÷ 2 = ₹32,500
• Y’s share = ₹65,000 ÷ 2 = ₹32,500

Entries in Personal Accounts

1. X’s Personal Account
   Since X has already recorded revenue of ₹1,00,000 and expenses of ₹70,000 (₹60,000 + ₹10,000), his net result before profit-sharing is a surplus of ₹30,000. After adding his share of profit (₹32,500), X’s final balance is:
   ₹62,500 (Credit balance)
2. Y’s Personal Account
   Since Y has recorded revenue of ₹40,000 and expenses of ₹5,000, his net result before profit-sharing is a surplus of ₹35,000. After adding his share of profit (₹32,500), Y’s final balance is:
   ₹67,500 (Credit balance)

Final Settlement

At the conclusion of the venture, the co-venturers settle their balances. If either co-venturer has withdrawn funds in excess of their share of profits or has outstanding liabilities, those amounts are adjusted before final distribution.

Summary

• The Memorandum Joint Venture Account Method is a simplified approach for recording joint venture transactions when separate books are not maintained.
• Each co-venturer records only their personal transactions, and a combined account is prepared at the end to ascertain the overall profit or loss.
• This method avoids the complexity of maintaining separate books, making it ideal for small or temporary ventures.
• The method relies on trust and transparency between the co-venturers, as they must share accurate records to determine the final result.

Advantages

• Simple and Cost-Effective:

No need to maintain a separate set of books or open a joint bank account.

• Time-Saving:

Each co-venturer records only their transactions, reducing accounting workload.

• Transparency:

Since the profit or loss is shared at the end based on actual transactions, the method ensures fair distribution.

Disadvantages

• Risk of Errors:

As each co-venturer records only their own transactions, there is a risk of incomplete or incorrect recording.

• Dependence on Honesty:

This method requires mutual trust between the co-venturers, as errors or omissions can lead to disputes.

• Limited Control:

Without a joint bank account and central record-keeping, it can be challenging to monitor the overall financial status of the venture during its operation.