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Home Accounting For Joint Ventures/Joint Venture Accounts Joint Venture Accounting Exercises and Problems
 

Joint Venture Accounting Exercises and Problems:

Learning Objectives:

  1. Prepare journal entries and joint venture accounts in the books of parties doing joint venture business.

  2. 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)    

   
joint venture account 400  
     To Cash account   400
(Expenses incurred on goods sent to B)    

   
joint venture account 4,000  
     To B   4,000
(Goods supplied by B)    

   
Joint venture account 300  
     To To B   300
(Expenses incurred by B on joint venture)    

   
B 12,000  
     To Joint venture account   12,000
(Sales proceeds received by B)    

   
Joint venture account 600  
     To B   600
(Commission due to B on sales at the rate of 5%)    

   
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)    

   
Cash account 6,760  
     To B   6,760
(The draft received from B in settlement)    

   

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    
 
 
  12,000   12,000
 
 
       

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
 
 
  12,000   12,000
 
 

Books of B

Journal Entries

joint venture account 4,000  
     To Cash account   4,000
(The value of goods supplied)    

   
joint venture account 300  
     To Cash account   300
(Expenses incurred on joint venture)    

   
joint venture account 5,000  
     To A   5,000
(Goods supplied by A)    

   
Joint venture account 400  
     To A   400
(Expenses incurred by B on joint venture)    

   
Cash account 12,000  
     To Joint venture account   12,000
(Sales proceeds received in cash)    

   
Joint venture account 600  
     To Commission account   600
(Commission due on sales at the rate of 5%)    

   
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)    

   
A 6,760  
     To Cash account   6,760
(The draft sent to A in settlement)    

   

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    
 
 
  12,000   12,000
 
 

A Account

Debit Side Credit Side
To Cash account

6,760

By Joint venture account 5,000
 

 

By Joint venture - Expense 400
    By Joint venture - profit 1,360
 
 
  6,760   6,760
 
 

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      
 
1,175    
To Profit and loss - 2/3 share 2,116.67    
To Tahir & Co. - share of profit 1,058.33    
 
 
  12,500   12,500
 
 

Tahir & Co.

Debit Side

Debit Side

  $   $
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  
     
1,175
    By Joint venture account 1,058.33
    By Cash - sight draft 7,266.67
 
 
  12,500   12,500
 
 

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      
   
1,175    
Commission 625    
To Profit and loss - 1/3 share 1,058.33    
To Salim & Co. - share of profit 2,116.67    
 
 
  12,500   12,500
 
 

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
 
 
  10,266.67   10,266.67
 
 

You may also be interested in other articles from "accounting for joint venture" chapter:

  1. Definition and Explanation of Joint Venture
  2. Difference Between Joint Venture and Consignment
  3. Advantages and Disadvantages of Joint Venture
  4. Joint Venture Accounting - Journal Entries
  5. Memorandum Joint Venture Account
  6. General Questions and Answers About Joint Venture Accounting
  7. Joint Venture Accounting Exercises and Problems

 

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