Financial Accounting · Joint Venture

Memorandum Joint Venture Account and Special Adjustments

Updated 10 October 2026 · Fact-checked

A memorandum joint venture account is a statement, not a ledger account, used when each venturer keeps only personal books. It collects the whole venture's income and expenses, finds the total profit or loss, and shares it in the agreed ratio. Special items like stock taken over, commission and interest are adjusted in it.

Understand Memorandum Joint Venture Account and Special Adjustments

In a joint venture, two or more persons (venturers or co-venturers) join to do a single business and share the profit or loss. When no separate set of books is kept for the venture, each venturer records only his own dealings with the venture and the other venturers. This is the memorandum joint venture method (also called the memorandum method).

The Memorandum Joint Venture Account is prepared outside the ledger. It brings together what every venturer has spent and received, so that the net profit or loss of the whole venture can be found. It is memorandum because it is not part of the double entry. It is only a working that shows the profit to be shared.

The Joint Venture Account (used when each venturer keeps a joint venture account in his own books) is a real ledger account. It records only that venturer's own transactions. Its balance shows the profit or loss on that venturer's own transactions only, and it is not the profit of the whole venture. His share of the total profit is found from the memorandum joint venture account. The memorandum account shows the total; the real account shows one venturer's view.

Special adjustments change the profit. Unsold stock taken over by a venturer is treated as a sale to him at the agreed value, so it is a credit (income) in the memorandum account. Commission to a venturer is an expense of the venture and income of that venturer.

Interest on advances is allowed only if the agreement provides for it. When it is allowed, it is an expense of the venture and income of the venturer who advanced the money. Interest charged to a venturer on drawings or advances taken from the venture is income of the venture only if the agreement says so. Expenses a venturer bears personally and does not charge to the venture are ignored.

An advance of cash from one venturer to another is a transfer between venturers. It is not income or expense of the venture, so it does not appear in the memorandum account. It only affects the settlement: the amount advanced is due back to the venturer who gave it, from the venturer who holds it.

The key habit is to ask for every item: does it belong to the venture, and whose books does it affect? Items of the venture go in the memorandum account. Items that only move cash between venturers do not.

Key rules to remember

Profit of the venture: Profit = (Sales + Stock taken over or unsold stock value + Other receipts) − (Purchases + Expenses + Commission + Interest); Stock taken over or unsold stock at the agreed or closing value is a credit item, like income. Use the memorandum account only to find the total. Share it in the agreed profit-sharing ratio.
Memorandum account sides: Debit: goods, expenses, commission, interest, profit. Credit: sales, stock taken over, closing stock, loss.; Profit is the balancing figure on the debit side, loss on the credit side. Advances between venturers do not appear in this account.
Stock taken over: Credit in memorandum account at agreed value; debit in the venturer's own personal account.; If the value is not given, use the cost or valuation information in the question and state your assumption in one line.
Commission on sales or profit: Commission on sales = Sales × rate ÷ 100; commission on profit before charging it = Profit before commission × rate ÷ 100; commission on profit after charging it = Profit before commission × rate ÷ (100 + rate); The base is profit before commission in both profit cases. Use the plain rate ÷ 100 if the commission is on profit before charging it. Use rate ÷ (100 + rate) if it is on profit after charging it. Read the wording carefully.
Interest on advance: Interest = Advance × rate ÷ 100 × time (in years); Allow it only if the agreement or question provides for it. Use the dates given. When allowed, it is an expense of the venture and income of the venturer who advanced it. Interest charged to a venturer on drawings or advances taken from the venture is income of the venture only if agreed.
Settlement by each venturer: Amount due to or from a venturer = Expenses and costs he paid + his share of profit + commission and interest due to him + advance he gave that is still held by another venturer − sales or receipts he collected − stock he took over − advance he holds from another venturer; Positive means he is owed money. Negative means he owes money. The advance term is a transfer of cash between venturers, not a venture item.

How to solve Memorandum Joint Venture Account and Special Adjustments questions

Use this order for any memorandum joint venture question. It keeps the venture's total separate from each venturer's settlement.

1Read the question and list each venturer's transactions: goods bought, expenses paid, sales made, cash received and sent.
2Check the special terms: commission, interest on advances, stock taken over, unsold stock and expenses not charged to the venture.
3Draw the memorandum joint venture account with two sides. Put every venturer's purchases and expenses on the debit side.
4Put every venturer's sales and the value of stock taken over on the credit side. Enter any commission and interest on the debit side.
5Find the balancing figure. A credit excess is profit and a debit excess is loss. Share it in the profit-sharing ratio.
6Prepare each venturer's personal account or the settlement statement. Show expenses paid, receipts and stock taken over, and the profit share. Then find the net amount due or payable.
7Check that the total settlement balances. The amounts owed to some venturers must equal the amounts owed by others.

Quickest way: One-column totals method

When to use it: Use when time is short and the question asks only for the profit and amount settled between venturers.

Write one list for income: sales, stock taken over and any unsold stock value.
Write one list for costs: purchases, expenses, commission and interest.
Subtract costs from income to get profit or loss. Share it in the ratio.
For each venturer, calculate cost he paid + his profit share + commission and interest due to him + advance he gave still held by another venturer − sales he collected − stock he took over − advance he holds from another venturer.
Confirm that the positive and negative settlements cancel out.

Common mistakes in Memorandum Joint Venture Account and Special Adjustments

Treating the memorandum account as a ledger and making journal entries for it
Students see 'account' and assume double entry.
Fix: Remember it is a statement only. Journal entries come from each venturer's personal account and personal books.
Leaving stock taken over out of the credit side
It is not a cash sale, so it looks like no income.
Fix: Treat it as a sale to the venturer at the agreed value. Credit the memorandum account and debit his account.
Treating commission as paid to an outsider
Students link commission with agents only.
Fix: If a venturer receives commission, it is an expense in the memorandum account and income in that venturer's settlement, but it is not an outside cash payment.
Adding interest on advances without reading the terms
Students apply interest to every loan or advance automatically.
Fix: Charge interest only when the agreement or question says so. Use the stated rate and time.
Deducting expenses a venturer pays personally and does not claim
Every payment looks like a venture cost.
Fix: Include only expenses that belong to the venture. Expenses borne personally and not charged to it stay outside the account.
Sharing profit before commission or interest are charged
Students rush to the ratio.
Fix: Deduct commission and interest first, then share the net profit. If commission is on profit before charging it, apply the plain rate to profit before commission. If it is on profit after charging it, use profit before commission × rate ÷ (100 + rate).

Worked examples

Example 1

A and B start a joint venture, sharing profits equally, without separate books. A buys goods for ₹60,000 and pays expenses of ₹4,000. B pays expenses of ₹6,000 and sells goods for ₹90,000. A takes over unsold goods valued at ₹5,000. Prepare the memorandum joint venture account and find the amount payable between A and B.

Show the solution

Debit side: A's purchases ₹60,000, A's expenses ₹4,000, B's expenses ₹6,000. Total costs = ₹70,000.
Credit side: B's sales ₹90,000 and stock taken over by A ₹5,000. Total = ₹95,000.
Profit = ₹95,000 − ₹70,000 = ₹25,000. Each share = ₹12,500.
A's position: paid ₹60,000 + ₹4,000 = ₹64,000; add profit ₹12,500 = ₹76,500; less stock taken ₹5,000 = ₹71,500 due to A.
B's position: B holds ₹90,000 of sales cash. He is entitled to his expenses of ₹6,000 and his profit share of ₹12,500, a total of ₹18,500. So B owes ₹90,000 − ₹18,500 = ₹71,500 to A.
The amounts agree: B pays A ₹71,500.

Answer: Profit is ₹25,000, shared ₹12,500 each. B pays ₹71,500 to A.

Example 2

X and Y share profits 3:2. X buys goods for ₹80,000 and pays expenses of ₹5,000. Y sells goods for ₹1,10,000 and pays expenses of ₹3,000. Y is entitled to 5% commission on sales. X gave Y an advance of ₹20,000 for the venture's cash needs; Y still holds it, and the agreement allows interest at 10% per annum on it for 6 months. X takes over remaining stock at ₹4,000. Find profit and the settlement.

Show the solution

Commission to Y = 5% × ₹1,10,000 = ₹5,500.
Interest to X = ₹20,000 × 10% × 6/12 = ₹1,000.
Costs = ₹80,000 + ₹5,000 + ₹3,000 + ₹5,500 + ₹1,000 = ₹94,500. The advance itself is a transfer between venturers, so it is not a cost or income of the venture.
Income = sales ₹1,10,000 + stock taken over ₹4,000 = ₹1,14,000.
Profit = ₹1,14,000 − ₹94,500 = ₹19,500. X's share = ₹11,700, Y's share = ₹7,800.
X's settlement: paid ₹85,000 + interest ₹1,000 + profit ₹11,700 = ₹97,700; less stock taken ₹4,000 = ₹93,700 due on the venture. Add the ₹20,000 advance he gave, which Y holds: ₹93,700 + ₹20,000 = ₹1,13,700 due to X.
Y's settlement: Y holds sales ₹1,10,000 and X's advance ₹20,000, a total of ₹1,30,000. Y is entitled to expenses paid ₹3,000, commission ₹5,500 and profit share ₹7,800, a total of ₹16,300. Y owes ₹1,30,000 − ₹16,300 = ₹1,13,700.
Y owes ₹1,13,700 to X, and the two agree.

Answer: Profit is ₹19,500 (X ₹11,700, Y ₹7,800). Y pays X ₹1,13,700, being ₹93,700 from the venture plus ₹20,000 return of the advance.

Exam tips

Draw the memorandum account before anything else. A neat statement earns step marks even if the final settlement has a slip.
In MCQs on stock taken over, remember it is a credit in the memorandum account at the agreed value.
Check the commission wording. 'On sales' and 'on profit' give different results, so read twice.
Always show the settlement check: the amounts due to venturers must equal the amounts owed by them.
State your assumption in one line if the question is silent on interest or expenses borne personally.

Practice questions from Joint Venture

Memorandum Joint Venture Account and Special Adjustments in other exams

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

Memorandum Joint Venture Account and Special Adjustments: frequently asked questions

What is the difference between a joint venture account and a memorandum joint venture account?

A joint venture account is a real ledger account in a venturer's books and shows only his own dealings. A memorandum joint venture account is only a statement showing every venturer's items together. It gives the total profit or loss to be shared.

How is stock taken over by a venturer treated?

It is treated as a sale to the venturer at the agreed value. Credit the memorandum account and show it as a debit against him in the settlement. This raises the venture's profit by that value.

Is commission to a venturer an expense of the joint venture?

Yes, if the agreement gives it. It reduces the venture's profit and is income to the venturer who receives it. It is not paid in cash to an outsider.

How is interest on advances handled?

If the agreement allows it, interest on a venturer's advance is an expense of the venture and income of that venturer. Calculate it on the amount, rate and period given in the question.