FINANCIAL ACCOUNTING II

Problems on Joint Venture

1. A and B enter into a joint venture to sell a consignment of timber sharing profits and
losses equally. A provides timber from his stock at a mutually agreed value of Rs.
5,000. He pays expenses amounting to Rs. 250. B incurs further expenses on cartage,
storage etc., amounting to Rs. 650 and receives cash for sales Rs. 3,000. He also
takes over goods of the value of Rs. 1,000 for his use in his own business. At the date
of close A takes over the balance of stock in hand which is valued at Rs. 1,100.
Prepare joint venture account and co-venturer’s account in the books of A.

2. A and B enter into a joint venture, agreeing to share profits and losses in proportion of
4/5th and 1/5th respectively. A supplies goods to the value of Rs. 5,000 and incurs
expenses amounting to Rs. 400. B supplies goods to the value of Rs. 4,000 and his
expenses amount to Rs. 300. B sells goods on behalf of the joint venture for Rs.
12,000 charging commission @ 5 % of value realized. The amount due is settled by
bank draft. Show the necessary accounts in the books of both the parties.

3. A and B enter into a joint venture sharing profits 3/5 and 2/5. A is to purchase timber
in Madhya Pradesh and forward it to B in Delhi. A purchased timber worth Rs. 10,000
and pays Rs. 1,000 as expenses. B received the consignment and immediately
accepted A’s draft for Rs. 8,000. A got it discounted for Rs. 7,850. B sold the timber
for Rs. 16,000. He had to spend Rs. 350 for fire insurance and Rs. 300 for rent.
Under the agreement he is entitled to a commission of 5 % on sales. Give journal
entries and ledger accounts in the books of A and B.

4. On 1st October 2013, Hiren bought a parcel of precious stones for Rs. 85,000. He
consigned it to Dhiren who agreed to share with him equally the profit and loss in the
venture. Hiren paid Rs. 900 on account of carriage and insurance. He drew on Dhiren
at 3 months a bill for Rs. 40,000 on account, discounting the bill on 4th October 2013
for Rs. 39,600. Discount is borne by the parties equally.
On receipt of the stones on 3rd October, Dhiren paid for insurance Rs. 300 and Rs.
800 for cutting and polishing. On 28th February 2013, Dhiren sold the stones for Rs.
1,05,000, his expenses being Rs. 900. On 31st March, he sent to Hiren an Account
Sales along with a bank draft for the amount due to him.
Write up the Accounts as they would appear in the books of Hiren and Dhiren
respectively.

5. Satyam and Shivam entered into a joint venture to purchase and sell timber. Profits and
losses were to be shared equally. Satyam financed the venture and Sivam undertook
the sales. Shivam is entitled to a commission of 5 % on the sale proceeds. Satyam
purchased goods to the value of Rs. 60,000. He also paid towards freight Rs. 1,600
and advance Rs. 1,000 to Sivam to meet the expenses of Joint Venture. Sivam paid
for carriage Rs. 200, Rent Rs. 400 and Sundries Rs. 100. Sales made by Sivam
amounted to Rs. 74,500.
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It was agreed that Satyam should receive Rs. 3,400 as interest on his investments the
remaining stock of unsold goods was taken over by Sivam at the agreed value of Rs.
2,700.
Give journal entries and how Joint Venture Account in the books of Satyam.

6. A enters into a joint venture with B. The following transactions took place during the
course of venture.
Particulars A (Rs) B (Rs)
Cash sent by ---- 3,000
Cash received by 3,000 ----
Goods purchased by 24,000 12,000
Goods supplied from own stock 6,000 3,000
Expenses paid by 4,380 2,190
Goods sold by 42,000 12,000
Unsold stock taken by 1,080 540
Prepare Joint Venture account and B’s Account in the books of A, assuming the
final settlement between A & B was made by a cheque.

7. A and B enter into a joint venture to ship goods abroad. A sends goods to the value of
Rs. 1,000 pays freight Rs. 100 and sundry expenses Rs. 150. These transactions
take place on 1st January 2013. B sends goods valued at Rs. 750 on February 1st
and pays freight and insurance Rs. 80 and sundry expenses Rs. 50. B advances to A
on March 31st Rs. 450 on account of the venture. A received account sales and
remittance of net proceeds for whole goods amounting to Rs. 2,500 on 1st April. Final
settlement between A and B is made on 30th April 2013 show these transactions of
the venture calculating interest at 5 % per annum in months.

8. A and B enter into a joint venture for guaranting the subscriptions at par of 10,00,000
shares of Rs. 1 each in Salem Lamps Ltd. They agree to share profits and losses
equally. The terms with the company are that A and B have to pay all expenses upto
allotment in consideration of the Salem Lamps Ltd., issuing to them 1,50,000 other
shares of Rs. 1 each fully paid. A introduced cash into business to meet the following
expenses.
Amount (Rs)
Rent 3,000
Solicitor’s charges 5,000
B incurred the following expenses :
Stamp charges and Registration fees 3,000
Advertising charges 2,500
Printing charges of Memorandum of Association and
Articles of Association etc., 3,500
The applications fell short of the 10,00,000 shares by 30,000 shares. A
introduced further cash on joint venture for these shares. The amount was utilized to
subscribe to these shares and paid to the company. The guarantee having been fulfilled,
Salem Lamps Ltd., handed over A and B 1,50,000 shares.
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The partnership sold all the shares. A received the sale proceeds of 1,20,000 shares
amounting to Rs. 1,10,000 and B of the remaining 60,000 shares amounting to Rs.
55,000.
Prepare a joint venture account and the separate accounts of A and B showing the
adjustment of final balance between them.

9. A, B and C entered into a joint venture and agreed to divide the profits in the ratio of 6
: 3 : 1. They purchased by auction several new machines for Rs. 50,000. A
contributing Rs. 30,000, B Rs. 20,000 and C Rs. 10,000 for carrying on the
transactions relating to the venture. A joint bank account was opened. They sold all the
machines for Rs. 1,25,000. A spent Rs. 2,450 and B and C spent Rs. 1,250
each in connection with the venture.
Show the joint venture account and other ledger accounts.

10. A and B doing business separately as building contractors, undertake jointly to

construct a building for a newly started joint stock company for a contract price of Rs.
1,00,000 payable as to Rs. 80,000 by instalments in cash and Rs. 20,000 in fully paid
shares of the company. A bank account is opened in their joint names. A paying in Rs.
25,000 and B Rs. 15,000. They are to share profits and losses in the proportions of
2/3 and 1/3 respectively. Their transactions were as follows :
Amount (Rs)
Paid wages 30,000
Bought materials 70,000
Material supplied by A 5,000
Material supplied by B 4,000
Architect’s fees paid by A 2,000
The contract was completed and the price (cash and shares) duly received. The
joint venture was closed by A taking up all the shares of the company at an agreed
valuation of Rs. 16,000 and B taking up the stock of materials at an agreed valuation
of Rs. 3,000. Show the necessary ledger accounts.

11. Jolly and Happy undertake jointly to construct a building for Hyderabad Insurance Co.,
Ltd., for contract price of Rs. 9,00,000 payable as to Rs. 7,20,000 by instalments in
cash and Rs. 1,80,000 in fully paid shares of the company. A Joint Bank Account is
opened in their names. Jolly paying in Rs. 2,25,000 and Happy Rs. 1,35,000. They
are to share profit or loss in the proportion of 2/3 and 1/3 respectively. Their
transactions were as follows :
Amount (Rs)
Paid wages 2,70,000
Bought materials 6,30,000
Material supplied by Jolly from his stock 45,000
Material supplied by Happy from his stock 36,000
Architect’s fees paid by Jolly 18,000
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The contract was completed and the price duly received. The Joint Venture was
closed by Jolly taking up all the shares of the company at an agreed valuation of Rs.
1,44,000 and Happy taking up the stock of materials at an valuation of Rs. 27,000.
Prepare the Joint Venture Account and the accounts of Jolly and Happy showing the final
distribution of cash.

12. Varma and Manik, both building contractors, undertook a Joint Venture involving the
construction of a school building. A Joint Bank Account was opened in which Verma
deposited Rs. 50,000 and Manik deposited Rs. 25,000. The contract amount was
Rs. 2,50,000.

The result of Joint Venture was to be shared as Verma 2/3 and Manik 1/3, the details
of the transactions were as under :
Amount (Rs)
Salaries 8,000
Wages paid 46,000
Building material purchased 1,10,000
Material supplied by Verma 9,000
Material supplied by Manik 8,000
Architect’s fees 7,000
Cartage 12,000
Concrete Mixer plant purchased 25,000

The stock of material on completion of the contract valued at Rs. 11,000 was
taken over by Verma. Concrete Mixer plant was sold out for Rs. 20,000. Mr. Verma was
to be paid rs. 12,000 per annum against establishment expenses to be charged to the
Joint Venture Account. The contract lasted for 8 months. Prepare Joint Venture
Account, Joint Bank Account and accounts of Verma and Manik.