Joint Venture: Meaning, Features, Need, Difference from Partnership & Accounting Methods Explained

Joint Venture 

A Joint Venture (JV) is a temporary partnership formed by two or more persons for carrying out a specific business activity. It does not use any firm name, and the venture ends automatically once the assigned task is completed. The profits or losses are shared in the agreed ratio, and if the agreement is silent, they are shared equally.

A joint venture is a binding contract between two venture partners to set up a project either in home country or host country or a third country. In this case both parties are committed to joint risk taking and joint profit & loss sharing. 

Example - A and B enter into a joint venture to construct a hospital for ₹20,00,000. They will share the profit or loss of this construction project. Once the building is completed and the project closes, the joint venture automatically comes to an end.

Features of a Joint Venture

1. It is an agreement between two or more persons for a temporary partnership.
2. The agreement is created to execute a specific venture or project.
3. The parties involved are known as co-venturers or joint venturers.
4. Co-venturers may contribute funds, supply goods, or provide services from their regular business.
5. The primary objective is to earn profit and distribute it among co-venturers in the agreed ratio.
6. The joint venture ends automatically once the specific task or project is completed.
7. Accounting for a joint venture is done on a liquidation basis (not on going-concern), because the venture has a limited life.

Need for Joint Venture

1. Co-venturers can contribute different expertise—for example, one may provide finance, another may provide technical or marketing skills.
2. It helps in spreading and minimizing risk, as all parties share responsibility.
3. Pooling the resources and skills of all co-venturers often results in higher profitability.

Joint Venture vs Partnership

Though both involve sharing profit or loss, they differ in purpose, duration, and accounting treatment.

Basis of Difference	Joint Venture	Partnership
Number of Members	No statutory limit	Maximum 20 in ordinary business and 10 in banking business
Application of Law	No specific enactment	Governed by the Indian Partnership Act, 1932
Designation of Parties	Members are called co-venturers	Members are called partners
Duration	Temporary; ends after completion of specific venture	Continuous business; does not end automatically
Accounting Basis	Liquidation basis	Going-concern basis
Profit Calculation	Calculated at the end of the specific venture	Calculated annually

Accounting Treatment of Joint Venture

There are three methods for maintaining joint venture accounts:

1. Separate Set of Books - A complete set of books is maintained exclusively for the joint venture.
2. Recording in the Books of One Co-venturer - Only one co-venturer maintains all the accounts related to the venture.
3. Recording in Each Co-venturer’s Books - Each co-venturer records only their own transactions in their personal books.

First Method – Joint Bank Method 

Recording of transaction in separate set of books. In this method, a complete set of double entry books is used for writing up joint venture transactions. Accounting treatment in this method is similar to that of the partnership transactions. This methods is usually followed when the joint venture undertaken is sufficiently large.

In this method, separate bank account is opened for the joint venture. The co-venturers to a joint venture pay their share of investment in this account and the payments on account of joint venture are also recorded in this account. Accounts of the co-venturers are also opened in the books. When the joint venture is completed, the amount due to the co-venturers are calculated paid and books are thus closed.

Under this method the following accounts are opened:

1. Joint venture account
2. Joint bank account
3. Co-venture account

Joint venture account 

Nominal account in nature. Shows profit or loss made on the venture (prepared just like trading and profit and loss account this account is debited with goods purchased and expenses incurred while credited with sales made).

Joint venture account

Particulars	Amount	Particulars	Amount
Expense Profit		Income or Sale Loss

Joint bank account

Amount contributed by each co venturer is deposited in this account account and it is used to record all cash transactions of the joint venture. On completion of joint venture, joint balance a/c is closed by paying the balance to co-venturer.

Joint bank account

Particulars	Amount	Particulars	Amount
Intial contributions Sales		Material brought Wages paid Expenses paid Drawing Final payment

Co- Venturer account

Personal account in nature. Represents the amount due by or due to him. 

1. Credited with amount of contribution made by him to the joint funds and his share of profit
2. Credited with his share of loss and unsold stock taken over by him. The balance of these accounts represents the amount due to or due from each co-venturer.

Co venturer account

Particulars	Amount	Particulars	Amount
Stock taken Final payment Drawing		Initial contribution Expense paid Share of profit

Journal Entries 

For amount contributed by co-venturer deposited into bank

Joint bank account Dr.

   To different co-venturer’s account 

For purchase of goods on accounts of joint venture

For purchase on cash

Joint venture account Dr.

   To joint bank account

For goods purchase on credit

Joint venture account Dr.

   To supplier’s personal account

For goods supplied by a con venturer from his own stock

Joint venture account Dr.

   To particular co-venturer’s account

For expense incurred on account of joint venture

For expense paid through bank

Joint venture account Dr.

  To joint bank account

For expense paid by co venturer

Joint venture account Dr.

  To particular co-venturer’s account

For goods sold on account of joint venture

For cash sales deposited into joint bank account

Joint bank account Dr.

   To Joint venture account

For sales proceeds taken by co venturer 

Particular co-ventuers account Dr.

  To joint venture account

For goods sold on credit 

Debtor’s account Dr.

  To Joint venture account

For unsold goods taken by co venturer

Particulars co-venturer account Dr.

  To joint venture account

For profit or loss on joint venture 

For profit on joint venture 

Joint venture account Dr.

   To each co ventuers account 

For loss on joint venture 

 Each co-venturer account Dr.

   To joint venture account

For settlement of final payments due to or from co ventures

For payment of the amount due to co venturer

Particulars co-venturer account Dr.

  To joint bank account

For receipt of the amount due from co-venturer

Joint bank account Dr.

  To particulars co-venturer account

Illustration 

Ishu and abhi entered into a joint venture and agreed to share profits and losses in the ratio of 2:1. A joint banking account was opened where ishu deposited 60,000 and abhi 40,000. Their transactions were as follows 

• Materials bought -  80,000
• Wages paid – 5,000
• Advertisement & selling expenses – 8,530
• Expenses paid by ishu – 2,400
• Amount drew by abhi from banking account 1,500
• Sales – 1,15,000

Remaining stock was taken over ishu for 6,700 and the venture was closed. Prepare necessary journal entries and ledger accounts showing the final distribution of cash among the co-venturers.

Date	Particulars	L.F.	Amount	Amount
	Joint bank account       Dr.		1,00,000
	To Ishu account			60,000
	To Abhi account			40,000
	(for money contributed by co venterer)
	Joint venture account   Dr.		80,000
	To Joint bank account			80,000
	(for material purchased on account of joint venture)
	Joint venture account Dr.		5,000
	To joint bank account			5,000
	(for wages paid on account of joint venture)
	Joint bank account  Dr.		1,15,000
	To Joint venture account			1,15,000
	(for goods sold on account of Jv)
	Joint venture account Dr.		8,530
	To joint bank account			8,530
	(for expense paid in connection with jv)
	Joint venture account Dr.		2,400
	To ishu account			2,400
	(for expense paid by ishu on behalf of Joint venture)
	Abhi account Dr.		1,500
	To joint bank account			1,500
	(for amount withdraw by abhi)
	Ishu account    Dr.		6,700
	To joint bank account			6,700
	( for remaining stock taken by ishu)
	Joint venture account Dr.		25,770
	To ishu account			17,180
	To Abhi account			8,590
	(for distribution of joint venture profit in ratio 2:1)
	Ishu account    Dr.		72,880
	Abhi account  Dr.		47,090
	To joint bank a/c			1,19,970
	(for final payment made to co-venture)

Ledger accounts – joint venture account

Particular	Amount	Particular	Amount
To joint bank account (m.p)	80,000	By joint bank account (sales)	1,15,000
To joint bank account (w.p)	5,000	By ishu (stock taken)	6,700
To joint bank account (e.p)	8,530
To ishu (e.p)	2,400
To profit transfer to co venture account
Ishu account 2/3  - 17,180
Abhi account 1/3 – 8,590	25,770
	1,21,700		1,21,700

Ledger accounts – ishu account

Particular	Amount	Particular	Amount
To joint venture a/c (stock taken)	6,700	By joint bank a/c (i.c)	60,000
To joint bank a/c	72,880	By joint venture a/c (e.p)	2,400
(balance figure being final payment)		By joint veture a/c	17,180
		(share of profit)
	79,580		79,580

Ledger accounts – abhi account

Particular	Amount	Particular	Amount
To joint bank a/c (drawing)	1,500	By joint bank a/c (intial cont)	40,000
To joint bank a/c	47,090	By joint veture a/c	8,590
(balance figure being final payment)		(share of profit)
	48,590		48,590

Joint venture account

Particular	Amount	Particular	Amount
To ishu a/c (initial cont.)	60,000	By joint venture a/c	8,000
To abhi a/c (initial cont.)	40,000	By joint venture a/c	5,000
To joint venture a/c (sales)	1,15,000	By joint venture a/c	8,530
		By abhi a/c	1,500
		By Ishu a/c	72,880
		By abhi a/c	47,090
	2,15,000		2,15,000

Second method – recording of transaction in the books of one co venturer only

This method is used when most of the buying and selling on account of joint venture is managed by one co venturer. In this method whole work is entrusted to one of the ventures and the rest simply contribute their share of investment. Working co-venturer allowed an extra remuneration out of the profit for his services.

Main accounts are maintained by co – venturer in his books

1. Joint venture account
2. Co-venturers account

Journal Entries 

For amount of capital contributed by another co-venturer

Cash or bank A/c Dr.

  To other Co-venture’s a/c

For goods purchased for joint venture

Joint venture a/c Dr.

  To cash or bank a/c

For goods contributed from own stock

Joint venture a/c Dr.

  To purchase a/c

 

For goods taken into joint venture from other ventuers

Joint venture a/c Dr.

 To other Co venturer's a/c

For expense paid on joint venture 

Joint venture a/c Dr.

  To Cash or bank a/c

For Goods sold on cash or credit 

Cash or debtors a/c Dr.

    To Cash or bank a/c

For commission due on joint venture

Joint venture a/c Dr.

  To Commissions a/c 

Division of closing stock amongst co-venturer

For remaining stock taken over by working co-venturer

Purchase a/c Dr.

  To joint venture a/c

For remaining stock taken by other co-venturer

Other co-venturer a/c Dr.

  To joint venture a/c

For transfer of profit on joint venture

Joint venture a/c Dr.

  To profit & loss a/c

  To other co-venturer a/c

For transfer of loss on joint venture 

Profit & loss a/c      Dr.

Other co-venturer a/c   Dr.

  To Joint venture a/c

For amount paid to another co-venturer

Other co-venturer a/c   Dr.

  To cash or bank a/c

Illustration (recording by one co-venturer only)

A, B and C entered into joint venture B and C each remitted 10,000 to A for purchase of household goods. A - Bought goods worth 20,000. He paid 600 as freight and 300 as insurance. He sold major part of the goods at 25,600 and took over the remaining goods at a valuation of 400. He settled the accounts due to b and C by a bank draft. Give journal entries and prepare joint venture account in the books of A.

Solution

In the books of A

Date	Particulars	L.F.	Amount	Amount
	Cash a/c    Dr.		20,000
	To B’s a/c			10,000
	To C’s a/c			10,000
	(for cash received from other co-venturer)
	Joint venture a/c    Dr.		20,000
	To cash a/c			20,000
	(for goods purchased for joint venturer)
	Joint venture a/c   Dr.		900
	To cash a/c			900
	(for expense paid for joint venture)
	Purchase a/c    Dr.		400
	To joint venture a/c			400
	(for remaining goods taken in own stock)
	Joint venture a/c    Dr.		5,100
	To profit & loss a/c			1,700
	To A’s a/c			1,700
	To B’s a/c			1,700
	(for transfer of profit on joint venture to co venturer a/c)
	B’s a/c    Dr.		11,700
	C’s a/c    Dr.		11,700
	To bank a/c			23,400
	(for amount due to B and C sent by bank draft i.e. 10,000 (initial contribution) + 1,700 share of profit = 11,700 each

Joint venture account

Particular	Amount	Particular	Amount
To cash a/c (Good purchase)	20,000	By cash a/c (sale proceeds)	25,600
To cash a/c (exp. Paid)	900	By purchases (stock taken over)	400
To profit transferred to
P&L a/c 1/3  - 1,700
B’s a/c 1/3  - 1,700
A’s a/c 1/3  - 1,700	5,100
	26,000		26,000

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