PREPARATION OF JOINT VENTURE ACCOUNT (ILLUSTRATION AND SOLUTION)

 

PREPARATION OF JOINT VENTURE ACCOUNT (IFRS 11 “JOINT ARRANGEMENT”)

•               Illustration (Question) on Joint Venture\
•         Solution to the Illustration (Question) on Joint Venture 
•               Preparation of Joint Venture Accounts by Each of the Partners

ILLUSTRATION

Fadworld  and Fadnet   enter into a joint venture with Fadworld acquiring 50% interest in Fadnet and the decision regarding the Fadnet’s relevant activities require unanimous decision of both parties. The aim of the joint venture is to buy customized product from a manufacture company and sell at different markets.

   Fadworld has invested N3 million in the business with profit or loss from the business is agreed to be shared 1:2 respectively. It was agreed that each parties keeps its own transaction and the details for their transactions for the month of January 2023 are given below;

                                      Fadworld              Fadnet 

        Purchases                                  25,000                  22,500

        Advertising                              1,200                         800

        Transportation                          3,000                     2,400

        Wages and Salaries                   4,000                     3,000       

        Other expense                          1,800                    1,100        

        Sales                                        44,000                  37,500

      At the end of the month, the settlement  between the joint ventures took place and each venturers received their shares from the venture.

You are required to prepare;

1.                  Joint venture account as it will appear in the book of Fadworld and Fadnet.
2.         Joint venture account when each venturer keep only records of his own transaction (Memorandum method).

SOLUTION

1.     Joint Venture Account as It Will Appear in the Book of FADWORLD and FADNET

In this case, each of the venturers will prepare two accounts which are:

i.                   Joint Venture Account and

ii.                 Co-venture’s Account (Account of other Venturer)

PREPARATION OF ACCOUNT IN THE BOOK OF FADWORLD

Joint Operation Account
	N		N
Purchases	25,000	Sales	44,000
Fadnet (Purchases)	22,500	Fadnet (sales)	37,500
Advertising	1,200
Fadnet( Advertising)	800
Transportation	3,000
Fadnet(Transport)	2,400
Wages & salaries	4,000
Fadnet (wages & sal.)	3,000
Other expenses	1,800
Fadnet (other exp)	1,100
Profit share:
Profit & Loss:   5,567
Fadnet             11,133       16,700
	81,500                                          81,500		81,500

Joint Operation Account
	N		N
Purchases	25,000	Sales	44,000
Fadnet (Purchases)	22,500	Fadnet (sales)	37,500
Advertising	1,200
Fadnet( Advertising)	800
Transportation	3,000
Fadnet(Transportation)	2,400
Wages & salaries	4,000
Fadnet (wages & sal.)	3,000
Other expenses	1,800
Fadnet (other exp)	1,100
Profit share:
Profit & Loss:   5,567
Fadnet             11,133	16,700		.
	81,500                                       81,500		81,500

 

Fadnet  Account
	N		N
Joint op (sales)	37,500	Joint Operation (purchases)	22,500
		Joint Operation ( Advertising)	800
		Joint Operation (Transport)	2,400
		Joint Operation (wages & sal.)	3,000
		Joint Operation (other exp)	1,100
Bank balance	3,433	Share of profit	11,133
	40,933		40,933

 

PREPARATION OF ACCOUNT IN THE BOOK OF FADNET

Joint Operation Account
	N		N
Purchases;	22,000	Sales	37,500
Purchases(fad net)	25,500	Fad net (sales)	44,000
Advertising	800
Fad world ( Advertising)	1,200
Transportation	2,400
Fad world(Transportation)	3,000
Wages & salaries	3,000
Fad world (w&s)	4,000
Other expenses	1,100
Fad  world (other exp)	1,800
Share of profit :    11,133
Fad world  share:   5,567	16,700		.
	81,500		81,500

 

 

 

Fadworld  Account
	N		N
Bank (transfer from fad)	30,000	Joint Operation ( fad purchases)	25,000
Joint operator (fad world)	44,000	Joint Operation  ( Advertising)	1,200
		Joint Operation (Transportation)	3,000
		Joint Operation (w&s)	4,000
		Joint Operation (other exp)	1,800
		Share of profit	5,567
	.	Bank (bal)	33,433
	74,000		74,000
			40,567