Illustration 1.

Sunder of Sundernagar and Nagpal of Nagpur entered into a joint venture to trade together in the buying and re-selling of cheap machinery. Profit or loss to be shared in the ratio of 2:3 . Sunder undertook to make the purchases and Nagpal to effect sales. Nagpal remitted Rs. 75,000 to Sunder towards Joint Venture. Sunder purchased machinery worth Rs. 60,000 and paid Rs. 28,500 for repairs of these, 2 % as buying commissions and Rs. 2,700 for other sundry expenses. He then sent all the machines purchased and repaired to Nagpal at Nagpur. While taking delivery of the machinery at Nagpur, Nagpal incurred Rs. 4,500 towards Railway Freight and Rs. 2,100 toward Octroi. He sold part of the machinery for Rs. 1,05,000 and kept the remaining for himself at an agreed value of Rs. 22,500. Other expenses of Nagpal were: I. II. III. IV. Godown rent Insurance Brokerage Miscellaneous Rs. 1,350 Rs. 1,680. Rs. 2,490 and Rs. 1,920

Both the parties decided to close the Venture at this stage. You are to prepare accounts for the joint venture to show how matters stood in each partys ledger and prepare a statement showing the result of the venture.

Solution: Joint Venture with Nagpal Account (In Sunders Ledger)

Particulars To Bank Purchase of machinery Repairs Commission Sundry Expenses To Profit and loss a/c (2/5th share) Amount (`) 60,000 28,500 1,500 2,700 8,304 1,01,004 Particulars By Bank A/c Amount received (from Nagpal) By Balance c/d Amount (`) 75,000 26,004

1,01,004

Joint Venture with Sunder (In Nagpal Books)

Particulars To Bank (Amount remitted to Sunder) To Bank: Railway freight Octroi Godown rent Insurance Brokerage Miscellaneous expenses To profit and loss account (3/5th share of profit) To Balance c/d Amount (`) 75,000 4,500 2,100 1,350 1,680 2,490 1,920 12,456 26,004 1,27,500 1,27,500 Particulars By Bank (Sales Proceeds) By Purchases A/c (Machinery taken over) Amount (`) 1,05,000 22,500

Statement showing the result of the Venture

Sales proceeds received by Nagpal Add: Value of machinery retained by Nagpal Less: Purchases and expenses by sunder: Purchases of machinery Cost of repairs Buying commission (2 % of Rs. 60,000) Sundry expenses Expenses by Nagpal: Railway freight Octroi Godown rent Insurance Brokerage Miscellaneous expenses Total [(A) + (B)] Profit : Sunder (2/5) Nagpal (3/5) 1,05,000 22,500 1,27,500 60,000 28,500 1,500 2,700 92,700 4,500 2,100 1,350 1,680 2,490 1,920 14,040 1,06,740 8,304 12,456 20,760

(A)

(B)

Illustration 2. Bheem and Arjun entered into a joint venture for buying and selling plastic goods and agreed to share profit and losses of in the ratio of 3:2. On October 1 2006, Bheem purchased goods at a cost of Rs. 60,000 and half of the goods were handed towards to Arjun. On October 15, he again purchased goods worth Rs. 20,000. He incurred expenses of Rs. 2,000.

On October 15, Arjun also made a purchase of Rs. 37,500 and on the same day he sent to Bheem goods worth Rs. 15,000. He incurred expenses of Rs. 900. On October 20, Bheem in order to help Arjun sent Rs. 16,000 to him. Both the parties sold goods at a profit of 25% on sales. On march 31st, 2007, Bheem had unsold stock of goods Rs. 12,500 of these goods costing Rs. 5,000 were taken away by him and the remainder sold for Rs. 8,000, Arjun was able to sell away complete goods expecting goods costing Rs. 1,500, which were badly damaged and were treated as unsalable. Rs. 3,000 owing to Bheem was unrecoverable and treated as joint loss. On March 31st 2007, parties decided to close the books. You are required to prepare, I. II. The joint venture account as it would appear in the books of Bheem recording his own transactions, and A memorandum joint venture account showing the profit of the business.

Solution: In the books of Bheem Joint Venture Account

Particulars To Cash (Purchases) To Cash (Purchases) To Cash (Expenses) To Bank To Share of profit Amount (`) 60,000 20,000 2,000 16,000 16560 1,14,560 Particulars By Cash (Sales) Less: Bad debts By Goods taken over By Sales store By Bank (from Arjun) 70,000 3,000 Amount (`) 67,000 5,000 8,000 34,560 1,14,560

In the books of Bheem and Arjun Memorandum Joint Venture Account

Particulars To Bheem: Purchases Purchases Expenses Bad debts To Arjun: Purchases Expenses To Profit: Bheem Arjun Amount (`) 60,000 20,000 2,000 3,000 37,500 900 16,560 11,040 Particulars By Bheem: Sales Goods taken over Sales By Arjun: Sales Amount (`) 70,000 5,000 8,000 68,000

27,600

1,51,000

1,51,000

Calculation of Sales Purchased Received from the other party Less: Sent to other party Less: Stock Add: Profit 1/3 on cost

Bheem 60,000 20,000 15,000 95,000 30,000 65,000 12,500 52,500 17,500 70,000

Arjun 37,500 30,000 67,500 15,000 52,500 1,500 51,500 17,000 68,000

Illustration 3. Ravi and Suresh entered into a joint venture for purchase and sales of electronic goods, sharing profit and loss in the ratio of 3:2. They also agreed to receive 5 per cent commission on their individual sales and the following information was extracted from the records: July 1, 2006: Ravi purchased goods worth Rs. 1,90,000 financed to the extent of 90 percent out of his funds and balance by loan from his uncle Shyam. August 1, 2006: Ravi sent goods costing Rs. 1,70,000 to Suresh and paid Rs. 1,410 as freight. Suresh paid Rs. 13,410 to Ravi. October 1, 2006: Suresh sold all the goods sent to him. Ravi repaid the loan taken from his uncle including interest of Rs. 350. All sales, by either party were made at an uniform profit of 40% above cost. On November 30 2006, they decided to close the venture by transforming the balance of goods unsold, lying with Ravi at cost of Rs. 9,000, to a wholesale dealer. Your are required to prepare memorandum joint venture account, personal account of the partners as they would appear in the books of Ravi and of Suresh. They further disclosed that goods worth Rs. 4,000 were taken personally by Ravi at an agreed price of Rs. 5,000. Solution: Memorandum Joint Venture Account
Particulars To Ravi: Purchase of goods Freight 1,90,000 1,410 Amount (`) By Suresh: Sales (2) By Ravi: Particulars Amount (`) 2,38,000

Interest paid Commission To Suresh: Commission To Share of profit: Ravi (3/5) Suresh (2/5)

350 490 1,92,250 11,900 34,590 22,060

Sales (1) Stock taken By Stock sent to Wholesaler

9,800 5,000 9,000

57,650 2,61,800

2,61,800

In the book of Ravi Joint Venture with Suresh Account

Particulars To Bank Purchases To Bank Freight To Bank Interest To Commission To Profit Amount (`) 1,90,000 1,410 350 490 34,590 2,26840 Particulars By Bank (Suresh) By Bank (Sales) By Stock taken By Bank stock sent to wholesaler By Bank received from Suresh Amount (`) 13,410 9,800 5,000 9,000 1,89,630 2,26,840

In the Books of Suresh Joint Venture with Ravi Account

Particulars To Bank (Ravi) To Commission To Profit To Bank (Ravi) Amount (`) 13,410 11,900 23,060 1,89,630 2,38,000 Particulars By Bank Sales Amount (`) 2,38,000

2,38,000

Working Notes: (1) Sales by Ravi: Purchase Less: Sent to Suresh Less: Transferred to Wholesaler Taken by self Add: 40% of profit Sales price (2) Sales by Suresh: Goods received from Ravi 1,90,000 1,70,000 20,000 9,000 11,000 4,000 7,000 2,800 9,800

1,70,000

Add: 40% of profit Sales made by Suresh

68,000 2,38,000

Illustration 4. Gopal and Gopi who share brokers agreed to enter into a joint venture to underwrite 5,00,000 equity shares of Rs. 10 each of a new company X ltd,. X ltd, agrees to allot them as fully paid 1,000 shares in the company in consideration of the underwriting agreement. The parties are to share profit and losses equally. In concentrations with the venture, the following expenses are incurred. Gopal: Printing and Stationary Postage Advertisement Gopi: Postage Solicitors fees Entertainment Expenses 750 3,500 4,000 5,000 1,000 3,000

The public subscription was for 4,80,000 shares only and the underwriters were forced to take up the balance and pay for them. To enable them to do so, the two persons approached the new bank of India, which on security of the shares advanced the required sum on 1st July 2006 at 15% interest per annum. The underwriters paid for the share on the same day and were also allotted the 4,000 shares by X ltd,. The underwriter through the bank unloaded their lot of holdings in the market in equal lots and realized 90% of the face value for the first lot on 38th September and 85% for the second lot on 31st October. The sales proceeds were applied in full to discharge the bank loan and the relative on the same dates. (The 4,000 shares formed part of the second lot). A share transfer fee of Rs. 1,006.25 was met from the joint venture bank account. You are required to draw a memorandum joint venture account in the account of Gopi as appearing in Gopal books and also the settlement of accocunt between the parties. Solution:

Ascertainment of Sales proceeds of shares Total no. of shares underwriting Less: No. of shares applied for the public No. of shares to be taken up Add: No. of shares received as commission No. of shares available for sale

Shares 5,00,000 4,80,000 20,000 4,000 24,000 Rs.

Half no. of shares i.e., [12,000/2] sold on 30-9-2005 @ Rs. 9 [90% of the face value of Rs. 10] per share Add: Half no. of shares i.e., 12,000 sold on 31-10-2005 @ Rs. 850 (85% of the face value of Rs. 10) per share Total sales proceeds of 24,000 shares Ascertainment of interest payable to the bank On Rs. 2,00,000 (amount taken for purchase of 20,000 shares of Rs. 10 each) for 3 months from July 1 to September 30 at 15% p.a On Rs. 99,500 (Balance of amount due Rs. 2,00,000 + Rs.7,500 interest up to September 30 Rs. 1,08,000 repaid on sales of shares on 30 September) for one month from October 1 to October 31 @ 15% p.a Total Interest Memorandum Joint Venture Account
Particulars To Gopal: Printing & Stationery Postage Advertisement To Gopi: Postage Fees to Solicitors Entertainment Expenses Rs. 5,000 1,000 3,000 750 3,500 4,000 Amount (`) Particulars By Joint Bank Account (Sale Proceeds of 24,000 shares) Rs. On Sep. 30 1,08,000 On Oct. 31 1,02,000 By Loss of Joint Venture Transferred to: Gopal 8,500 Gopi 8,500 Amount (`)

1,08,000

1,02,000 2,10,000 Rs.

7,500.00

1243.75 8,743.75

9,000

2,10,000

8,250

17,000

To Joint Bank Account (Amount for purchase of 20,000 shares of Rs. 10 each) To Interest on Bank Loan To Share Transfer Fees

2,00,000 8,743.75 1,006.25 2,27,000.00

2,27,000.00

Gopals Books Gopi in Joint Venture Account

Date 2006 Oct.31 Particulars Amount (`) Date 2006 Oct.31 9,000 Oct.31 Oct.31 9,000 Particulars Amount (`)

To Bank Account (Expenses incurred for the joint venture)

By Profit & Loss A/c (Share of Loss on Venture) By Bank Account (1) By Bank Account (Payment In Settlement)

8,500 250 250 9,000

Gopis Books Gopal in Joint Venture Account

Date 2006 Oct.31 Particulars Amount (`) Date 2006 Oct.31 8,250 250 8,500 Particulars Amount (`)

To Bank Account (Expenses incurred for the joint venture) To Bank Account (Amount Paid in settlement)

By Profit & Loss A/c (Share of Loss on Venture)

8,500

8,500

Working Notes: (1) Amount of Joint Venture Account: Sale proceeds of 24,000 shares Less: Repayment for Bank Loan Interest on loan Share Transfer fees Amount given to Gopal Rs. 2,00,000 8,743.75 1,006.25 Rs. 2,10,000

2,09,750 250