Joint Venture Memorandum Account – An Alternative Method
Joint Venture Memorandum Account – An Alternative Method:
Learning Objectives:
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What is a memorandum joint venture account?
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Prepare a memorandum joint venture account.
The is another method to record the transactions in the books of the various parties. Under this method the joint venture account is prepared on memorandum basis, just to find out the profit or loss but not as a part of financial books. The name of such account is memorandum joint venture account. I books only one account is opened styled as “joint venture with…..account”.
Suppose A and B have entered into a joint venture. The A will open an account named, joint venture with B account. Similarly, B will open, in his books, joint venture with A account. This account is prepared in the following manner:-
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Goods sent or expenses incurred on joint venture are debited to the account.
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No account is taken of goods supplied or expenses incurred on joint venture by the other party.
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If any cash or acceptance is received on account of joint venture or from other party, this account is credited.
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The account is debited with own share of profit (ascertained by the memorandum joint venture account) the credit being given to profit and loss account. If there is a loss the profit and loss account is debited and this account is credited. The balance of this account will show either the amount owing to the other party or amount owned by the other party.
Example:
Following example will make the concept more clear:
Memorandum Joint Venture Account
| Debit Side | Credit Side | |||
|
$ |
$ |
|||
| To A (Cost of goods & Exp.) | 5,400, | By B – sales | 12,000 | |
| To B (Cost of goods & Exp.) | 4,300 | |||
| To B (Commission) | 600 | |||
| To Profit: | ||||
| A 4/5 | 1,360 | |||
| B 1/5 | 340 | |||
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| 1,700 | ||||
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| 12,000 | 12,000 | |||
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In the Books of A
Joint Venture With B Account
| Debit Side | Credit Side | ||
|
$ |
$ |
||
| To Cash (goods) | 5,400, | By Cash | 6,760 |
| To Cash (Expenses) | 4,300 | ||
| To Profit and loss (4/5 of profit) | 1,360 | ||
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| 6,760 | 6,760 | ||
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In the Books of B
Joint Venture With A Account
| Debit Side | Credit Side | ||
|
$ |
$ |
||
| To Cash (goods) | 4,000 | By Cash | 12,000 |
| To Cash (Expenses) | 300 | ||
| To Commission | 600 | ||
| To Profit and loss (1/5 of profit) | 340 | ||
| To Cash | 6,760 | ||
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|
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| 12,000 | 12,000 | ||
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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
