Joint Venture Memorandum Account -
An Alternative Method:
Learning Objectives:
-
What is a memorandum
joint venture account?
-
Prepare a memorandum joint
venture account.
The is another method to
record the transactions in the books of the various parties. Under this
method the joint venture account is prepared on memorandum basis, just to
find out the profit or loss but not as a part of financial books. The name
of such account is memorandum joint venture account. I books only one
account is opened styled as "joint venture with.....account".
Suppose A and B have entered
into a joint venture. The A will open an account named, joint venture with B
account. Similarly, B will open, in his books, joint venture with A account.
This account is prepared in the following manner:-
-
Goods sent or expenses
incurred on joint venture are debited to the account.
-
No account is taken of
goods supplied or expenses incurred on joint venture by the other party.
-
If any cash or acceptance
is received on account of joint venture or from other party, this
account is credited.
-
The account is debited
with own share of profit (ascertained by the memorandum joint venture
account) the credit being given to profit and loss account. If there is
a loss the profit and loss account is debited and this account is
credited. The balance of this account will show either the amount owing
to the other party or amount owned by the other party.
Example:
Following example will make
the concept more clear:
Memorandum Joint Venture
Account
|
Debit Side |
Credit Side |
| |
$ |
|
$ |
| To A (Cost
of goods & Exp.) |
5,400, |
By B - sales |
12,000 |
| To B (Cost
of goods & Exp.) |
4,300 |
|
|
| To B
(Commission) |
600 |
|
|
| To Profit: |
|
|
|
|
A 4/5 |
1,360 |
|
|
|
|
B 1/5 |
340 |
|
|
|
| |
|
| |
1,700 |
|
|
| |
|
|
|
| |
12,000 |
|
12,000 |
| |
|
|
|
In the Books of A
Joint Venture With B
Account
|
Debit Side |
Credit Side |
| |
$ |
|
$ |
| To Cash (goods) |
5,400, |
By Cash |
6,760 |
| To Cash (Expenses) |
4,300 |
|
|
| To Profit and loss
(4/5 of profit) |
1,360 |
|
|
| |
|
|
|
| |
6,760 |
|
6,760 |
| |
|
|
|
In the Books of B
Joint Venture With A
Account
|
Debit Side |
Credit Side |
| |
$ |
|
$ |
| To Cash (goods) |
4,000 |
By Cash |
12,000 |
| To Cash (Expenses) |
300 |
|
|
| To Commission |
600 |
|
|
| To Profit and loss
(1/5 of profit) |
340 |
|
|
| To Cash |
6,760 |
|
|
| |
|
|
|
| |
12,000 |
|
12,000 |
| |
|
|
|
|
