Financial Accounting Concepts

What is a joint venture? | Methods of Recording Transactions

What is joint venture ? Explain various methods of recording the joint venture transaction.

Give entries in each case

Joint Venture (JV) is a temporary form of business where two or more people join together to meet short-term objectives.

It is quite similar to a Partnership firm but established without name or registration separately under any law. Generally, JVs are formed for some particular purpose of business objective, and once the objective is completed, the JV is put to an end.

There are many benefits to entering into a joint venture. Perhaps the most significant benefit is that it allows two businesses to pool their resources and expertise to achieve a common goal. This can result in more efficient and effective use of resources and a greater ability to take on larger projects or ventures.

Another benefit of joint ventures is that they can help build and strengthen business relationships. This can lead to increased cooperation and collaboration, which can be beneficial in the long term. Additionally, joint ventures can help businesses to tap into new markets and expand their customer base.

There are three methods of recording the JV transactions.

Method 1: When a separate set of books are maintained

In this method, each co-venturer maintains its own set of books of accounts.

Method 2: When a separate set of books are not maintained.

There can be two cases as given below:

CASE 1: When each co-ventures keep a record of all transactions

  • Joint venture account
  • Co-venture’s account

CASE 2 : When each co-venture keep record of its own transaction only

  • Memorandum JV account
  • Joint venture with co-venture account

Method 3: When each co-venturer keeps record of own transaction only

Journal Entries

Following are the journal entries to be passed in the case of JV.

Method 1: When a separate set of books are maintained

1. When the contribution made by the coventure’s

Joint bank account Dr.

To co-ventures’ account

When the expenses paid through a joint bank account

JV account Dr.

To joint bank account

When the expenses paid or materials supplied by the co-ventures from a private account

JV account Dr.

To co-venture account

When the sales proceeds or collections

Joint bank account Dr.

To joint venture account

When the collections received by coventures

Co-ventures account Dr.

To JV account

When the assets taken over by the coventure’s

Co-ventures account Dr.

To JV account

When the liabilities are taken over by the co-venturer

JV account Dr

To co-venture account

When there is profit on the joint venture

JV account Dr.

To co-venture account

When there is a loss on the joint venture

Co-venture account Dr.

To JV account

When the final settlement made to coventure’s

Co-venture account Dr.

To Joint Bank Account

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