Joint Venture Accounting Exercises and Problems
Learning Objectives:
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Prepare journal entries and joint venture accounts in the books of parties doing joint venture business.
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How to solve a joint venture problem.
Problem 1 – Journal Entries, Joint Venture Account Co-venturer Accounts:
A and B were partners in a joint venture sharing profits and losses in the proportion of four-fifth and one-fifth respectively. A supplies goods to the value of $5,000 and inures expenses amounting to $400. B supplies goods to the value of $4,000 and his expenses amounting to $300. B sells goods on behalf of the joint venture and realizes $12,000. B is entitled to a commission of 5 percent on sales. B settles his accounts by bank draft.
Required: Give journal entries and necessary ledger accounts in the books of both the parties.
Solution:
Books of A
Journal Entries
joint venture account | 5,000 | |
To Cash account | 5,000 | |
(Goods sent to B) | ||
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joint venture account | 400 | |
To Cash account | 400 | |
(Expenses incurred on goods sent to B) | ||
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joint venture account | 4,000 | |
To B | 4,000 | |
(Goods supplied by B) | ||
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Joint venture account | 300 | |
To To B | 300 | |
(Expenses incurred by B on joint venture) | ||
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B | 12,000 | |
To Joint venture account | 12,000 | |
(Sales proceeds received by B) | ||
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Joint venture account | 600 | |
To B | 600 | |
(Commission due to B on sales at the rate of 5%) | ||
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Joint venture account | 1,700 | |
To B | 340 | |
To Profit and loss account | 1360 | |
(Profit $1,700 divided as 1/5 to B and 4/5 to self) | ||
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Cash account | 6,760 | |
To B | 6,760 | |
(The draft received from B in settlement) | ||
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Joint Venture Account
Debit Side | Credit Side | ||
To Cash – Goods | 5,000 | By B – Sales | 12,000 |
To Cash – Expenses | 400 | ||
To B – Goods | 4,000 | ||
To B – Expenses | 300 | ||
To B – Commission | 600 | ||
To B – Share of profit | 340 | ||
To Profit and loss account | 1,360 | ||
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12,000 | 12,000 | ||
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B Account
Debit Side | Credit Side | ||
To Joint venture account | 12,000 | By Joint venture – Goods | 4,000 |
By Joint venture – Expenses | 300 | ||
By Joint venture – Commission | 600 | ||
By Joint venture – Profit | 340 | ||
By Cash | 6,760 | ||
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12,000 | 12,000 | ||
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Books of B
Journal Entries
joint venture account | 4,000 | |
To Cash account | 4,000 | |
(The value of goods supplied) | ||
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joint venture account | 300 | |
To Cash account | 300 | |
(Expenses incurred on joint venture) | ||
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joint venture account | 5,000 | |
To A | 5,000 | |
(Goods supplied by A) | ||
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Joint venture account | 400 | |
To A | 400 | |
(Expenses incurred by B on joint venture) | ||
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Cash account | 12,000 | |
To Joint venture account | 12,000 | |
(Sales proceeds received in cash) | ||
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Joint venture account | 600 | |
To Commission account | 600 | |
(Commission due on sales at the rate of 5%) | ||
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Joint venture account | 1,700 | |
To A | 340 | |
To Profit and loss account | 1360 | |
(Profit $1,700 divided as 1/5 to B and 4/5 to A) | ||
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A | 6,760 | |
To Cash account | 6,760 | |
(The draft sent to A in settlement) | ||
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Joint Venture Account
Debit Side | Credit Side | ||
To Cash – Goods | 4,000 | By Cash account – Sales | 12,000 |
To Cash – Expenses | 300 | ||
To A – Goods | 5,000 | ||
To A – Expenses | 400 | ||
To Commission | 600 | ||
To A – Share of profit | 1,360 | ||
To Profit and loss account | 340 | ||
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12,000 | 12,000 | ||
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A Account
Debit Side | Credit Side | ||
To Cash account |
6,760 |
By Joint venture account | 5,000 |
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By Joint venture – Expense | 400 | |
By Joint venture – profit | 1,360 | ||
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6,760 | 6,760 | ||
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Problem 2 – Joint Venture Account and Co-venturer Accounts:
Salim & Sons bought goods of the value of $7,500 and consigned them to Tahir and Co. to be sold to them on a joint venture, profit being divided in 2/3 : 1/3. They also paid $550 for freight, insurance and cartage and drew on Tahir and Co. for $3,000 on account. The bill was discounted by Salim & Sons for $2,900. Tahir and Co. paid $300 for dock dues, storage, rent etc. The sales realised $12,500 and the sales expenses $250 were defrayed by Tahir and Co. The later forwarded a sight draft for the balance due to Salim & Sons after charging their sales commission at 5 percent on the gross proceeds.
Required: Write up the accounts in the books of both the parties. No interest need to be brought into account.
Solution:
Salim & Sons Books
Joint Venture Account
Debit Side | Credit Side | |||
$ | $ | |||
To cash – cost of goods | 7,500 | By Tahir & Co.-sales proceeds | 12,500 | |
To cash – expenses | 550 | |||
To Discount on bill | 100 | |||
To Tahir and Co. | ||||
Dock, dues & storage | 300 | |||
Sales expenses | 250 | |||
Commission | 625 | |||
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1,175 | |||
To Profit and loss – 2/3 share | 2,116.67 | |||
To Tahir & Co. – share of profit | 1,058.33 | |||
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12,500 | 12,500 | |||
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Tahir & Co.
Debit Side |
Debit Side |
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$ | $ | |||
To Joint venture a/c – sales1 | 12500 | By Bill receivable account | 3,000 | |
By Joint venture account | ||||
Dock & Storage | 300 | |||
Sales expenses | 250 | |||
Commission | 625 | |||
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1,175 | |||
By Joint venture account | 1,058.33 | |||
By Cash – sight draft | 7,266.67 | |||
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12,500 | 12,500 | |||
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Tahir & Co. Books
Joint Venture Account
Debit Side | Credit Side | |||
$ | $ | |||
To Salim & Co. – cost of goods | 7,500 | By Cash – sales proceeds | 12,500 | |
To Salim & Co. – expenses | 550 | |||
To Salim & Co. – Discount on bill | 100 | |||
To Cash. | ||||
Dock, dues & storage | 300 | |||
Sales expenses | 250 | |||
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1,175 | |||
Commission | 625 | |||
To Profit and loss – 1/3 share | 1,058.33 | |||
To Salim & Co. – share of profit | 2,116.67 | |||
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12,500 | 12,500 | |||
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Salim & Sons
Debit Side | Credit Side | ||
$ | $ | ||
To Bills payable a/c | 3,000 | By Joint venture account | 7,500 |
To Cash – sight draft | 7,266.67 | By Joint venture account | 550 |
By Discount account | 100 | ||
By Joint venture account – 2/3 | 2,116.67 | ||
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10,266.67 | 10,266.67 | ||
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You may also be interested in other articles from “accounting for joint venture” chapter:
- Definition and Explanation of Joint Venture
- Difference Between Joint Venture and Consignment
- Advantages and Disadvantages of Joint Venture
- Joint Venture Accounting – Journal Entries
- Memorandum Joint Venture Account
- General Questions and Answers About Joint Venture Accounting
- Joint Venture Accounting Exercises and Problems