Joint Venture Accounting for CMA Inter Financial Accounting

What this chapter covers

Joint Venture: topics in the order to study them

1. 1Joint Venture: Meaning and FeaturesStart here to understand what a joint venture is, how it differs from a partnership, and who the co-venturers are, since every later topic builds on these terms.
2. 2Methods of Accounting for Joint VentureNext, learn the available methods so you can pick the right one by reading the question's wording on books and settlement.
3. 3Joint Venture Accounts When Separate Books Are MaintainedThis is the most structured method, with its own cash, Joint Venture and co-venturer accounts, so it teaches the full flow of entries.
4. 4Joint Venture Accounts When No Separate Books Are KeptStudy it after the separate-books method, because it reaches the same profit using only each venturer's own records and personal accounts.
5. 5Memorandum Joint Venture Account and Special AdjustmentsFinish with the memorandum account, a technique used within the no-separate-books method, and adjustments such as unsold stock, commission and expenses, which need the earlier methods to be clear first.

How to prepare Joint Venture

1. Read the meaning and features once and write a three-line note on how a joint venture differs from a partnership and from consignment.
2. Learn the two main methods and note the clue words in a question that tell you which one to use.
3. Solve two or three separate-books problems fully: Joint Venture Account, cash or bank account, and each co-venturer's account, closing with settlement.
4. Solve no-separate-books problems, where each venturer prepares the Joint Venture Account and the other venturers' accounts in their own ledger.
5. Practise the memorandum account separately as a technique within the no-separate-books method, and check that its total profit matches the profit found by the other approach.
6. Work through adjustments such as unsold stock taken over, commission, and expenses paid by a venturer, listing the treatment of each.
7. Before the exam, attempt a mixed set under time and check the closing balances and the profit-sharing step.

Common mistakes in Joint Venture

• Choosing the wrong method for the question

  Fix: Underline the sentence about books before you begin and write the method name at the top of your answer.

• Treating a venturer's own expenses as personal expenses

  Fix: Where separate books are kept (or in the joint accounts prepared for the venture), debit the Joint Venture Account and credit the venturer who paid, unless the agreement says otherwise. Under the no-separate-books method, the venturer records the expense in his own books.

• Ignoring unsold stock or its agreed value

  Fix: Scan the whole question for stock, and credit it to the Joint Venture Account at the stated value.

• Applying commission on the wrong base

  Fix: Read the base carefully and, for profit-based commission, write the calculation as a separate working.

• Sharing profit in the wrong ratio

  Fix: Use the profit-sharing ratio given in the agreement; if none is given, share equally.

• Not showing workings in written answers

  Fix: Show workings for commission, stock and profit share, because step marks are awarded for them.

Last-day revision: Joint Venture

• ✓A joint venture is a temporary arrangement for a specific venture, not a continuing business.
• ✓Profit or loss is shared in the agreed ratio; if none is stated, share it equally.
• ✓Co-venturers are the persons who join in the venture.
• ✓With separate books, open a Joint Venture Account and a Joint Bank or Cash Account.
• ✓With no separate books, each venturer records only his own transactions and dealings with others.
• ✓In the Joint Venture Account, debit expenses and purchases; credit sales and other receipts.
• ✓The balance of the Joint Venture Account is profit or loss, shared among the venturers.
• ✓Unsold stock taken over by a venturer is credited to the Joint Venture Account at the agreed value.
• ✓Commission on sales or profit is charged to the venture only as the agreement states.
• ✓The memorandum joint venture account is a technique used within the no-separate-books method to find the overall profit; it is not a separate method of accounting.
• ✓Close each co-venturer's account by settlement in cash or bank.
• ✓Check that total profit shared equals the Joint Venture Account balance.

Joint Venture practice questions

• Which statement best describes the relationship between co-venturers in a joint venture under the Indian Partnership Act principles applied …
• A and B enter into a joint venture sharing profits and losses equally. A purchases goods worth ₹80,000 and incurs expenses of ₹4,000. B sell…
• In accounting for a joint venture, which method requires a separate set of books to be maintained for the venture, with a Joint Venture Acco…
• Which of the following is a distinguishing feature of a joint venture as treated in Financial Accounting at the CMA Intermediate level?
• Anil and Bharat run a joint venture sharing profits 3:2. Anil purchased goods worth Rs 80,000 and paid expenses Rs 5,000. Bharat sold all go…
• Arun and Bhaskar enter into a joint venture to sell a consignment of goods and share profits and losses equally. Arun supplies goods costing…
• Ravi and Sunil run a joint venture sharing profits 3:2 without separate books. Ravi bought goods for ₹1,20,000 and spent ₹5,000 on expenses.…
• In a joint venture with separate books, the venture made sales of Rs 90,000, purchased goods for Rs 80,000 and incurred expenses of Rs 4,000…

Joint Venture in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

• CMA FoundationJoint Venture
• CA FinalInd AS 111 Joint Arrangements
• CA IntermediateAS 27 Financial Reporting of Interests in Joint Ventures
• CS ExecutiveBusiness Collaborations