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Method III- Memorandum joint venture account method


 

The salient features of this method may be summarized here as:

(a) Each Co-Venturer records only those joint venture transactions which are effected by him with the help of a personal account designed as 'Joint Venture with... (Name of the other Co-Venturer).... Account’. It is debited with the purchases/supplies made and expenses incurred by the Venturer. It is credited with the sales effected and unsold stock taken over by the Venturer.
 

(b) Each Co-Venturer sends a statement of joint venture transactions effected by him only, to the other Co-Venturers.
 

(c) Each   Co-Venturer  on   the  receipt  of   the   aforesaid   statement  prepares ‘ Memorandum Joint Venture A/c ’ in order to ascertain the  profit/loss  on  Joint Venture  transactions.  Since this account is in fact not a part and parcel of double entry system the word 'Memorandum' is prefixed. This A/c can be compared with ‘Joint Venture’ A/c as follows:

  • Both these accounts are debited with the same items.
     
  • Both these accounts are credited with the same items.
     
  • Both these accounts show profit/loss on Joint Venture.
     
  • All  the  items  posted  in  Joint Venture A/c  have  their  corresponding  debits/credits  in  the  books  of  A/c, whereas  it is not so in the case of 'Memorandum Joint Venture Accounts.

(d)  Each Co-Venturer makes a Journal entry for his share of profit/loss in his books of account.
 

(e) Each Co-Venturer settles the balances of 'Joint Venture with..... Account’ either by paying (if Cr. Balance) or receiving Cash (if Dr. Balance).


Journal Entriesfor Memorandum joint venture account

 

1. (a) On Receipt of any amount/Bills

 

Cash/Bank A/c/Bill Receivable A/c

Dr.

 

To Joint Venture with...A/c

 

(b) On Discounting Bills Receivable

 

Bank A/c

Dr.

[with Net Proceeds]

Joint venture with...A/c

Dr.

[with Discount]

 

To Bills Receivable A/c

[with Total]

                                              
 

 



2. On Purchase of Goods


 

Joint Venture with.... A/c

Dr.

(with Total)

 

To Cash/Bank A/c

(with cash purchases)

 

To Supplier's A/c

(with credit purchases)

 

 


 

3. On Making Payment to Supplier

 

Supplier's A/c

Dr.

(with Total)

 

To Cash/Bank A/c

(with Payment made)

 

To Joint Venture with...A/c

(with Discount received)

               

                       

 



4. On Supply of Goods out of own stock

 

Joint Venture with.... A/c

Dr.

 

 

To Purchases A/c/Goods sent on Joint Venture A/c

(if supplies at cost)

 

To Sales A/c

(if supplies at profit)

 

 

 


5. On Payment of Expenses

 

Joint Venture with....A/c

Dr.

(with total)

 

To Cash/Bank A/c

(with cash expenses)

 

To Creditor's A/c

(with O/s expenses)

                                           

 



6. On Sale of Goods

 

Cash/Bank A/c

Dr.

(with cash sales)

Customer's A/c

Dr.

(with credit sales)

 

To Joint Venture with....A/c

(with Total)



 

 


7. On Receiving Payment from a Customer
 

Cash/Bank A/c 

Dr.

(with the payment received)

Joint Venture with...A/c

Dr.

(Discount allowed/Bad Debts)

 

To Customer's A/c

(with Total)

                                                      
                                 

 


 

8. On Taking Away of Unsold Goods

 

Goods Sent on Joint Venturer A/c

Dr.

 

To Joint Venture with...A/C

               

 



9. When the Co-Venturer is entitled to some commission/salary

 

Joint Venture with.... A/c

Dr.

 

To Commission A/c/Salary A/c

               

 


10. On Recording the Share of Profit/Loss
 

(a)   In case of Profit
 

Joint Venture with....A/c

Dr.

 

To Profit and Loss A/c

 

 (b)  In case of Loss

 

Profit and Loss A/c

Dr.

 

To Joint Venture with.... A/c

                                       

 


11. On Settlement of Balance of Joint Venture with.....A/c
 

(a) In case of a debit balance
 

Cash/Bank A/c

Dr.

 

To Joint Venture with.... A/c


(b)  In case of a credit balance

 

Joint Venture with... A/c

Dr.

 

To Cash/Bank A/C

 

 (i)    Transactions effected by other Co-Venturers are not recorded.

(ii)  Transactions not involving any cash receipt/payment are not recorded in the books of either party, e.g. Return of goods by one
Co-Venturer to another Co-Venturer is not recorded in the books of either party.  






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