Accounting for Joint Venture

Memorandum Joint Venture account

For finding out the share of profit or loss, a separate account, called "Memorandum Joint Venture Account", is prepared. It is a rough account and hence does not form part of the books of accounts of any of the co-venturer. All the expenses are recorded on the debit side and all the incomes, including takeovers, are recorded on the credit side. The balancing figure in the account is the amount of profit or loss which is distributed in the agreed ratio.

Format of memorandum account

Firm A and firm B Memorandum Joint Venture Account

Details	Amount	Amount	Details	Amount	Amount
Purchases	xxx		Sales	xxx
Less: Return out	xxx	xxx	Less: Return in	xxx	xxx
Expenses		xxx	Discount received		xxx
Bad debts		xxx	Asset taken over		xxx
Discount allowed		xxx	Stock taken over		xxx
Profit A	xxx
B	xxx	xxx
		xxx			xxx

Example 1

Majura and Majuni enter into a joint venture to share profit or losses equally resulting from dealings in second-hand digital TVs. Both parties take an active role in the business, each recording his own transactions. They have no joint banking account or separate set of books.

2011

July 1. Majura buys four TV for a total of sh. 110,000.

3. Majura pays for repairs sh. 84,000

4. Majuni pays office rent sh. 30,000 and advertising expenses sh. 9,000.

5. Majuni pays for packing materials sh. 3,400.

6. Majuni buys a TV in excellent condition for sh. 60,000

31st. Majura sells the five TVs to various customers, the sales being completed on this date, and totalling sh. 310,000.

Show the relevant accounts in the books of both joint venturers.

Solution

IN THE BOOKS OF MAJURA

DR JOINT VENTURE A/C WITH MAJUNI CR

Details	Amount	Details	Amount
July 1 Purchases	110,000	Sales	310,000
3 Repairs	84,000
Share of profit	6,800
Balance c/d	109,200
	310,000		310,000
Cash paid to Majuni	109,200	Balance b/d	109,200

IN THE BOOKS OF MAJUNI

DR JOINT VENTURE A/C WITH MAJURA CR

Details	Amount	Details	Amount
July 4 Rent	30,000	Balance c/d	109,200
4 Advertising	9,000
6 Packaging	3,400
7 Purchases	60,000
Share of profit	6,800
	109,200		109,200
Balance b/d	109,200	Cash received from Majura	109,200

DR JOINT VENTURE MEMORANDUM A/C CR

Details	Amount	Details	Amount
Purchases	170,000	Sales	310,000
Repairs	84,000
Rent	30,000
Advertising	9,000
Packaging	3,400
Share of profit
Majura	6,800
Majuni	6,800
	310,000		310,000

DR ADJUSTED CASH BOOK CR

Date	Details	Amount	Date	Details	Amount
	Balance b/d	15,000		Bank charges	300
	Dividends	2,400		Standing order	2,000
	Credit transfer	2,600		Charity subscription	700
	Direct deposit	14,000		Balance c/d	31,000
		34,000			34,000
	Balance b/d	31,000

BANK RECONCILIATION STATEMENT AS AT 31st DEC 2008

Balance as per adjusted cash book		31,000
Add: unpresented cheques Temale	2,500
Fadiga	2,900	5,400
		36,400
Less: Uncredited cheque		6,900
Balance as per bank statement		29,500

Example 2

Mziwanda and Mwerevu agreed to enter into joint venture to buy and sell speed boats. Profit and losses were to be shared in the ratio of 2:1 respectively.

On 2nd May 2018 Mziwanda purchased three speed boats for TZS 600,000, TZS 700,000 and TZS 900,000 respectively. He bought a reconditioned engine costing TZS 400,000 which he installed in one of the boats, the old engine being scrapped. On 31st May 2018 he sold two of the speed boats for TZS 600,000 each, depositing the proceeds in his own bank account. On 12th June 2018 he sold the third boat for TZS 1,600,000 which he paid over to Mwerevu who deposited it into his personal bank account.

On 3rd May 2018 Mwerevu purchased a speed boat for TZS 700,000 and having incurred expenditure of TZS 50,000 on repainting the boat, he sold it on 8th May 2018 for TZS 800,000 depositing the proceeds into his personal bank account. This boat developed mechanical problems and on 28th May 2018 Mwerevu agreed to take back the boat at an agreed price of TZS 750,000 which he paid out of his bank account. The boat was still unsold until 30th June 2018 and it was agreed that Mwerevu should take it over for his personal use at a valuation of TZS 700,000. Other costs incurred were as follows:

	Mziwanda	Mwerevu
Harbour dues	100,000	300,000
Marine insurance	200,000	600,000

Mziwanda paid into his bank account net receipts of TZS 200,000 in respect of speed boat trips. On 1st July 2018 the sum required in full settlement as between Mziwanda and Mwerevu was paid by the party accountable.

Using the information provided, prepare:

i. Joint Venture Accounts in the books of Mziwanda and Mwerevu respectively. ii. Memorandum Joint Venture Account.

Solution

Mziwanda Book

JOINT VENTURE WITH MWEREVU

Purchases	1,200,000	Cash: Sales	1,200,000
Cash: Engine	400,000	Net Receipt from Boats trip	200,000
Cash: Harbor Dues	100,000	Profit and loss: Share of loss	133,333
Cash: Marine Insurance	200,000	Balance c/d	366,667
	1,900,000		1,900,000
Balance b/d	366,667	Cash settlement from Mwerevu	366,667

Mwerevu Books

JOINT VENTURE WITH MZIWANDA

Purchases	700,000	Cash: Sales	800,000
Cash: Expenses incurred	50,000	Sales (Mziwanda)	1,200,000
Cash: Harbor Dues	300,000	Mziwanda: Goods Taken	700,000
Cash: Marine Insurance	600,000	Profit and Loss: Share of loss	66,667
Goods returned	750,000
Balance c/d	366,667
	2,766,667		2,766,667
Cash: Settlement to Mziwanda	366,667	Balance b/d	366,667

Mziwanda and Mwerevu

MEMORANDUM JOINT VENTURE ACCOUNT

Purchases	1,900,000	Cash: Sales	3,200,000
Cash: Expenses incurred	450,000	Receipt from Boat trips	200,000
Harbor Dues	400,000	Mziwanda: Goods Taken	700,000
Marine Insurance	800,000
Goods returned	750,000
		Profit and Loss: Share of loss
		Mziwanda	133,333
		Mwerevu	66,667
	4,300,000		4,300,000