Each Co-venturer records all transactions relating to the joint venture in the Joint Venture Account opened in his books. But, under the Memorandum Joint Venture Account Method, each Co-venturer will record only those transactions relating to the joint venture which are directly concerned with him, and not those of others. Under this method, each Co-venturer opens a Joint Venture Account including the name of the other Co-venturer.
For example, if ‘A’ and ‘B’ are partners in a joint venture, then in the books of ‘A’ it will be termed as ‘Joint Venture with ‘B’ Account’ and in the books of ‘B’ it will be termed as ‘Joint Venture with ‘A’, Account’. Each Co-venturer will record only such transactions which are actually effected by him. For example, if goods are purchased by ‘A’ for the joint venture, it will be recorded only by A and not by other Co-venturers. Similarly, if goods are sold by ‘B’, it will be recorded in the books of ‘B’ only. This account is in the nature of a personal account and, therefore, will not disclose the profit or loss of the venture. For that purpose we prepare an additional account called, ‘Memorandum Joint Venture Account’. This is like Profit and Loss A/c.
Let us say ‘A’ and ‘B’ enter into a joint venture and certain transactions have taken place for which the following entries will be passed in each Co-venturer’s books.
1. A purchases goods for cash:
This transaction shall be recorded in the books of A only. The entry will be:
Joint Venture with B A/c Dr.
To Cash A/c
2. A incurs some expenditure on account of the joint venture:
It shall be recorded in A’s books only. The entry will be:
Joint Venture with B A/c Dr.
To Cash A/c
3. B sells goods for cash:
No entry will be made in A’s books. But the following entry will be made in B’s books:
Cash Account Dr.
To Joint Venture with A A/c
4. B sends money to A:
a) It shall be recorded in B’s books as follows:
Joint Venture with A A/c Dr.
To Cash/Bank A/c
b) It shall be recorded in A’s books as follows:
Cash/Bank A/c Dr.
To Joint Venture with B A/c
As stated earlier, for ascertaining the profit or loss on the joint venture, we prepare a Memorandum Joint Venture Account. This account is prepared exactly on the pattern of Profit & Loss Account. Since this account does not form part of the double entry system, the word ‘Memorandum’ is prefixed.
The method of preparing this account is very simple. It is prepared on the basis of information supplied by all the Co-venturers. The debit entries appearing in the personal accounts of all Co-venturers are written on the debit side of the Memorandum Account and the entries appearing on the credit side of those accounts are shown on the credit side of the Memorandum Joint Venture Account. However, you should remember that the transactions which do not relate to an item of expense or income are to be excluded from this Memorandum Account. The difference in the totals of the debit side and the credit side represents profit or loss. The profit or loss thus calculated is then shared by the Co-venturers in the agreed profit sharing ratio.
Each Co-venturer will record only his share of profit or loss. In the event of profit, the entries shall be:
In the books of A
Joint Venture with B A/c Dr.
To Profit & Loss A/c
In the books of B
Joint Venture with A A/c Dr.
To Profit & Loss A/c
In the event of Loss the entries shall be reversed as follows :
In the books of A
Profit and Loss A/c Dr.
To Joint Venture with B A/c
In the books of B
Profit and Loss A/c Dr.
To Joint Venture with A A/c
In the end, each venturer balances the ‘Joint Venture with .....Account’ in his books and settles the account by paying or receiving cash.
