Joint Venture Definition:

A legal relationship among individuals or corporations to invest

or apply other resources, for some common purpose

What Are the Characteristics of a Joint Venture?

A joint venture is a partnership with a key difference. While a partnership
concerns ongoing business in all regards, a joint venture only concerns a single
project or a related series of transactions. Here are some other characteristics of
joint ventures:

 Profits and expenses - Unless otherwise agreed to, joint venturers share
profits and losses equally
 Duration - Unless otherwise specified, a joint venture terminates upon the
completion of the project or series of transactions
 Termination - Unlike a partnership, a joint venture does not terminate
upon the death or incapacitation of one joint venturer. A joint venturer
does have the power to terminate the relationship at any time once the
project or transaction is complete.

What Are Some Examples of a Joint Venture?

Joint ventures are formed in all kinds of business realms. Examples include:

 Private persons - For example, independent contractors can combine

resources through a joint venture to get a major contract to build a housing
development.
 Corporations - For example, General Motors and Volvo Trucks formed a
joint venture to build heavy duty trucks. This is a joint venture instead of a
partnership because the two companies conduct business separately
except for this related series of transactions (manufacturing trucks).

What Are the Duties of Joint Venturers?

Parties in a joint venture have duties to one another. Such duties include:

 Fiduciary duty - A fiduciary duty basically means that each party has a
duty to act in the best interests of all involved. Acting for your own best
 interests is a breach of fiduciary duty (which can also be a breach of
contract if the joint venture was formed by a contract).
 Disclosure - All information regarding the joint venture shall be disclosed
to the involved parties. This becomes an issue when certain trade secrets,
patents, or other sensitive information is involved. Make sure the contract
clearly specifies what information each party is required to disclose.
 Liability - If a third party is affected by the joint venture, all parties
involved are equally liable. For example, a joint venture is formed to
construct a building. During construction, a brick falls and injures a
pedestrian. All joint venturers would be liable for the pedestrian¿s injury.

What Are the Rights of Joint Venturers?

Parties in a joint venture have certain rights. Such rights include:

 Equal control, influence, and power over the project or transaction.

However, the contract can give one party complete control.
 Equal ownership of the project (and thus equal shares of profits and
expenses)

Difference Between Joint Venture and

Consignment:
Learning Objectives:

1. What is the difference between joint ventures and consignment?

Parties:
In joint venture, parties to the agreement are known as co-venturers while in
consignment they are termed as consignor and consignee.

Compensation:
Co-venturers are the partners in the venture and share profits or losses of the
venture. Where as consignee is never a partner. Consignee gets his commission for
acting as an agent for consignor.

Relation:
Each co-venturer is a partner as well as the agent of other co-venturers. Where as
consignee is the agent of his principle i.e., consignor.
Termination:
Relationship of co-venturers comes to an end when venture is completed. Where as
relationship of consignor and consignee continues until terminated by parties.

Investment:
Co-venturers, usually, contribute towards the capital of the venture (in the form of
money or materials) but consignee does not contribute towards the capital.

Rights:
Co-venturers enjoy equal rights as partners but consignee only acts as an agent.

Ownership:
Co-venturers are the owners of their venture but in consignment the consignor is the
owner not the consignee.

Account Sales:

Consignee is required to send account sales to consignor. Co-venturers exchange the

relevant information. No regular reports are submitted.

Joint Venture Journal Entries:

Learning Objectives:

1. What is accounting treatment of joint ventures?

2. Prepare journal entries in the books of parties doing
joint venture business.

There are two methods in which joint venture accounts can

be kept These are:

1. Where no separate books are kept to record joint

venture transactions.
2. Where as separate set of books is kept to record the
transactions.
When Separate Books Are Not Kept:
When it is not possible to maintain a separate set of books for joint venture
transactions, each party will use his ordinary business books for recording such
transactions. Each party will open a joint venture account and the accounts of other
parties in his books. Suppose A and B enter into a joint venture. Then A will open a
joint venture account and also an account of B in his books. Similarly, B will open in
his books, a joint venture account and the account of A. The following journal
entries are made:

1. When goods are purchased and money is spent on joint venture by any partner:
Joint venture account
To Cash or seller's account

2. When goods are purchased by the fellow - partners and report is received from
them or money is spent by them on joint venture:
Joint venture account
To Partner's personal account
Thus the joint venture account in the books of one partner tallies with the same as it
stands in the books of other partner:

3. When expenses are incurred by the other party:

Joint venture account
To Cash account

4. When expenses are incurred by the other party:

Joint venture account
To Other party's account

5. If any advance is received by the other party, say in the form of bill of
exchange:
Bills receivable account
To Other party's account

6. If any advance is given to the other party, say in the form of promissory not:
Other party's account
To Bills payable account

7. If the bill receivable is discounted, the usual entry for discounting the bill is
passed. The discount should be transferred to the joint venture account. The
entry is:
Joint venture account
To Discount account

8. If the bill payable was issued in favor of the other party and that party has got
it discounted, the discount will have to be debited to the joint venture account,
the credit will be in the other party's account:

9. When the goods bought on the joint venture account are old:
 Cash or purchaser's account
To Joint venture account

10. When the goods are sold by the co-partners and on being informed of the sale:
Other party's account
To Joint venture account

11. When money is received on joint venture:

Bank or cash
To Joint venture account

12. If money is received by the other party on account of joint venture:

Other party's account
To Joint venture account

13. If any special commission is received on account of joint venture:

Joint venture account
To Commission account

14. If any commission is payable to other party:

Joint venture account
To Other party's account
(Commission may have to be paid for making sales or even for making
purchase)

15. Sometimes some goods are left unsold and one of the parties takes them. The
entry is:
Purchases account
To Joint venture account

16. If the goods are taken by the other party:

Other party's account
To Joint venture account

17. Now the joint venture account will show a profit or loss. The profit will be
divided in the agreed proportions. The entry is:
Joint venture account
To Other party's account
To Profit and loss account
(In case of loss the entry will be reversed.)

When Separate Books Are Kept:

Under this method a separate joint bank account is opened. The amount
contributed by each partner as his share of investment is deposited into a joint
bank account. accounts of the parties concerned are also opened. The system
of accounting then is as follows:
 1. The amount contributed by each partner is debited to a joint bank account
and credited to the personal account of each partner.
2. Goods bought on joint venture as well as expenses incurred in connection
with thebusiness are debited to the joint venture account and credited to the
seller's account or the joint bank account.
3. When the goods are sold, the amount thereof is debited to the partner's
account or the joint bank account and credited to the joint venture account.
4. If the parties have taken over plant or materials etc., the value will be debited
to the account of the party concerned and credited to the joint venture
account.
5. The joint venture account will now show profit or loss which will be
transferred to the personal accounts of the respective parties in their profit
sharing ratio.
6. The joint bank account will then be closed by making payment to each
partner of what is due to him in respect of his personal account.

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

1,700

12,000 12,000

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
1,360
profit)

6,760 6,760
 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
340
profit)
To Cash 6,760

12,000 12,000