Chapter: CONSIGNMENT Accounts

Wholesalers and Manufactures find it quite convenient and profitable to sell goods, through the
medium of an agent at home and abroad. An agent sells the goods on behalf of sender of goods
and charges commission. The knowledge of the agent regarding local conditions proves quite
useful for increasing the sales. The person who sells the goods is called consignor‘or principal‘,
the person to whom the goods are sent is termed as consignee‘ or agent‘ and the shipment of the
goods is known as consignment. Thus, a consignment may be defined as shipment of goods by
a manufacturer or wholesale dealer to an agent for sale on commission basis. An agent sells the
goods on account of consignor and risk is borne by the consignor. It is not transfer of ownership
of goods, but only sending of goods by one person to another at a different place to be sold by the
latter on behalf of the former. When the goods are sent by the consignor, it is known as outward
consignment. To the consignee, it is an inward consignment. Consignee does not become the
debtor for the goods received on consignment. The relationship between both the parties is that of
an agent and a principal only. The goods consigned to the agent are treated as sales only when
these are sold by the consignee and he becomes entitled to be reimbursed for the expenses incurred
on behalf of consignor and is also entitled to receive commission for the goods sold by him.
Consignment and Sale – Distinction:
The following are the main points of difference between consignment and sale of goods:
a. In case of consignment, legal ownership of goods rests with the consignor. It is only the
possession of goods which is transferred to the consignee. In case of sale, the legal
ownership of goods is transferred immediately from the seller to the buyer of goods.
b. In case of consignment the relationship between the consignor and consignee is that of
principal and an agent and continue till terminated, while in case of sale, the relationship
between the two parties is that of buyer and seller and terminate as soon as payment is
made and goods are transferred.
c. In case of consignment, the risk of loss or damage to the goods remains with the consignor
till the goods consigned are sold by the consignee. In case of sale, risk attached to the goods
passes along with ownership to the buyer of goods.
d. In consignment, the consignor usually bears the expenses incurred by the consignee in
connection with the goods consigned to him. In case of sale, expenses incurred by the
buyer, after its completion, will be borne by him.
e. In consignment, Account Sales‘ is required to be submitted periodically by the consignee
to the consignor. But in case sale, no Account sales‘ is required to be submitted by the
buyer to the seller.
f. In consignment, goods are sold by the consignee against commission, while in case of sale,
goods are sold against price.
g. In consignment, unsold goods with the consignee can be returned at any time if he feels
that goods cannot be sold except at a loss, while in case of sale, the goods cannot be
returned by the buyer after the sale is complete.
Nature of a Consignment

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 - If the owner of the goods does not have retail outlets, he can consign the goods to an agent.
- The agent will sell the goods for him and receive a commission in return.
Main Terms of Consignment
Trade Consignor – He is the person who sends goods to agents e.g. a manufacturer or wholesaler.
Consignee – He is the agent to whom goods are sent for selling.
Ordinary Commission – This is a fee payable by consignor to consignee for sale of goods when
the consignee does not guarantee the collection of money from ultimate customer. The % of such
commission is generally lower.
Del Credre Commission – This is additional commission payable to the consignee for taking over
additional responsibility of collecting money from customers. In case, the customers do not pay of
the consignee takes over the loss of bad debts in his books. Although it‘s paid for taking over risk
of bad debts that arise out of credit sales only, this commission is calculated on total sales and not
on credit sales.
Account Sales – This is a periodical statement prepared by consignee to be sent to the consignor
giving details of all sales (cash and credit), expenses incurred and commission due for sales,
destroyed-in-transit, or in godown and deducting the amount of advance remitted by him.
Proforma Invoice:
When the goods are sent by consignor to the consignee, consignor sends a proforma Invoice‘ in
the form of an invoice to the consignee, proforma Invoice‘ contains information related to the
nature of goods, number and/ or quantity, weights, other measurements related to the goods and
marked price, etc. It is to be noted that proforma invoice is only in the nature of memorandum
invoice and not a regular invoice, so it does not make the consignee accountable to pay the amount
mentioned therein. Generally, the price sown in such invoice is not the cost price but it is
sometimes the selling price and sometimes the cost price plus an arbitrary percentage of profit.
Operating Cycle of Consignment Arrangement
(i) Goods are sent by consignor to the consignee
(ii) Consignee may pay some advance or accept a bill of exchange
(iii) Consignee will incur expenses for selling the goods
(iv) Consignee maintains records of all cash and credit sale.
(v) Consignee prepares a summary of results called as Account sales
(vi) Consignor pays commission to the consignee
Sometimes, the consignor may send the goods at a price higher than cost so that the consignee gets
no knowledge of the real cost of goods which is confidential for the consignor.
Accounting for Consignment Business
The consignor and consignee keep their own books of accounts. The consignor may send goods to
many consignees. Also, a consignee may act as agent for many consignors. It is appropriate that
both of them would want to know profit or loss made on each consignment. There are certain new

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accounts that are to be opened in addition to regular accounts as cash or bank. Let us see the entries
in the books of consignor as well as consignee.
Situations Consignor’s books Consignee’s books
On sending goods Consignment A/c Dr No Entry
To Goods Sent on Consignment
On expenses for sending Consignment A/c Dr No Entry
goods To Cash/ Bank A/c
On consignee accepting Bill Receivables A/c Dr Consignor‘s Personal A/c
bill of exchange To Consignee‘s Personal A/c Dr To Bills Payable A/c
On expenses incurred by Consignment A/c Dr Consignor‘s Personal A/c
consignee To Consignee‘s Personal A/c Dr To Cash/ Bank A/c
On consignee reporting Consignee‘s Personal A/c Dr Cash/ Bank A/c Dr
sales To Consignment A/c To Consignor‘s Personal A/c
For commission Consignment A/c Dr Consignor‘s Personal A/c
To Consignee‘s Personal A/c Dr To Commission A/c
On closing stock Stock on Consignment A/c Dr No Entry
To Consignment A/c

Credit Sales Accounting in books of Consignor

In case consignee sales goods on cash and credit both, the responsibility of collection from
customers may be either with consignee or consignor. The risk of non-collection is usually borne
by the consignor. If consignor want this to be shouldered by the consignee, additional commission
in the form of ‗Del Credre‘ commission is payable. It may be noted that in case of credit sales, the
personal accounts of debtors are to be maintained by the consignor and not the consignee. The
entry for credit sales will be: Consignment Debtors A/c Dr
To Consignment A/c

Del Credere Commission and Bad Debts

Sometimes the consignor allows an extra commission to the consignee in order to cover the risk
of collection from customer. On account of credit sales which is known as Del Credere
Commission. Naturally, if debt is found to be irrecoverable the same must be form borne by the
consignee. There will be no effect in the books of consignor. In short, credit sales will be treated
as cash sales to consignor. If no Del credere commission is given by the consignor to the consignee,
the amount of Bad debts must be borne by the consignor.
Entries in the Books of Consignor
(a) When Del Credere Commission is given
- For Credit Sales: Consignee‘s Personal A/c Dr. To, Consignment A/c
- For Bad Debts: No Entry
- For Del Credere Commission: Consignment A/c Dr. To, Consignee‘s Personal A/c
(b) When Del Credere Commission is not given
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 - For Credit Sales: Consignment Debtors A/c Dr. To, Consignment A/c
- For Bad Debts: Consignment A/c Dr. To, Consignment Debtors A/c
- a) For realization of Cash: Cash A/c Dr. To, Consignment Debtors A/c if collected by
Consignor
- (b) Consignee‘s: Personal A/c Dr. To, Consignment Debtors A/c if collected by
Consignee
Entries in the Books of Consignee
(a) When Del Credere Commission is given
- For Credit Sales: Consignment Debtors A/c Dr. To, Consignor A/c
- For Bad Debts: Bad Debts A/c Dr. To, Consignment Debtors A/c
- For realization of cash from cash from Debtors: Cash/ Bank A/c Dr. To, Consignment
Debtors A/c
- For Closing: Bad Debts A/c Commission Received A/c Dr. To, Bad Debts A/c
(b) When Del Credere Commission is not given:
There will be no entry against a bad debts entry in the books of consignee
VALUATION OF STOCK
- If there are unsold goods on consignment at the end of the accounting period, the value of
the unsold stock will be carried down to the following period.
- Unsold stock on consignment should properly value; otherwise final accounts cannot be
prepared.
- Usually, unsold stock on consignment is value at (Consignor‘s Cost +Consignee‘s Expenses)
- Alternatively, total cost of goods plus total expenses incurred by the consignor plus total non
recurring expenses of the consignee are to be added and stock should valued on the basis of
proportionate unsold goods.
The entry will be:
Stock on Consignment A/c Dr. To, Consignment A/c
(Unsold stock on consignment will appear in the asset side of Balance Sheet.)
Invoice Price higher than cost price:
Sometimes, the consignor does not want to reveal actual price of the goods to the consignee so that
he may not know the actual profit or loss being made by him on these goods. Therefore, the
consignor sends the goods at a price higher than cost price, known as proforma invoice price. The
consignor adds some profit margin to the cost price of the goods and prepare an invoice showing
the invoice price of the goods. Thus, consignment account stands debited with the invoice price of
the goods. Therefore, some adjustments are required at the end of each balancing period to
ascertain the correct profit or loss on consignment. Hence, the following journal entries are
required to be passed in the books of consignor.
(i) Goods sent on consignment Account Dr. To Consignment Account
(Being the excess of invoice price of goods sent on consignment adjusted)
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The entry is made with the amount difference between cost price and invoice price of the goods
sent. If some goods remain unsold with the consignee, then also the adjustment is required to
nullify the effect of higher price and show the stock on cost price. The journal entry being passed
(a) Consignment Account Dr. To Consignment Stock Reserve Account
(Being the excess of invoice value over cost price adjustment to show the unsold stock at cost
price).
Illustration 1
The Billa Mills Ltd. of Canada consign to their Cameroon agent 10,000,000frs worth of piece
goods. They pay charges fright and insurance on the consignment amounting to 650,000frs and
discount the bill which costs 200,000frs. The goods were received in Cameroon and in due course
the account Sales was received as follows:
Account sales of 200 bales of piece goods from Billa Mills Ltd. of Canada.
Details Frs frs
200 Bales of piece goods at 14,000,000
Less:
Delivery charges etc., 500,000
Godown rent 70,000
Insurance 80,000
Sundry charges 18,000
Commission 700,000 1,368,000
12,632,000
Draft paid 10,000,000
Balance herewith 2,632 ,000

Enter these particulars in the ledger of the consignor and complete the transaction showing final
profit or the loss on the consignment.
Illustration 2
A‘ sends goods worth 50,000,000frs to B‘ for sales for 5% commission. He incurs 1,500,000frs
for Freights and 500,000frs for Insurance. The goods are sold for 60,000.000frs, consignee incurs
500,000 frs unloading expenses and 500,000frs rent. B sends a draft after deducting his expenses
and commission. Prepare necessary accounts in the books of A.
Illustration 3
Usha sent goods costing 7,550,000frs on consignment basis to Gari on 1.2.2015 @8.5%
commission, 825,000frs was spent on transportation by Usha. Gari spent 525,000frs on unloading.
80% of the goods received were sold for 9,000,000frs, 10% of the goods for 1,000,000 and the
balance was taken over by Gari @10% below the cost price. She has sent a demand draft to Usha
for the amount due show in Usha‘s Books. (i) Consignment Account (ii) Gari‘s Account.

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 Chapter: JOINT VENTURE
Joint Venture is a temporary form of business organization. There are certain business activities
or projects that may involve higher risks; higher investments and even they demand multi-skills.
In such cases, an individual person may not be able to muster all resources. Hence two or more
people having requisite skill sets come together to form a temporary partnership. This is called a
Joint Venture. There is a Memorandum of Undertaking (MOU) signed for this purpose.
a. The business activities for which Joint Ventures (JV) are formed could be : -
- Construction of dams, bridges, roads etc.
- Buying & selling of goods for a particular season
- Producing a film - Purchasing land selling plots
b. The basic features of a Joint Venture business are :
- It is done for a specific purpose and hence has a limited duration.
- The partners are called co-venturers
- The profit or loss on joint venture is shared between the co-venturers in the agreed ratio.
- The co-venturers may or may not contribute initial capital.
- The JV is dissolved once the purpose of the business is over.
- The accounts of the co-venturers are settled immediately on dissolution.
- A joint venture has no name.
Difference between Joint Venture and Consignment:
The following are differences between Joint Venture and Consignment:
No. Point of Distinction Joint Venture Consignment
1 Relation between Is that of owners Is that of the principal and the
parties. agent.
2 Methods of keeping Four methods of keeping Is only one
accounts. accounts.
3 Continuity Is terminated as soon as Will be there even after one
ofRelationship between the venture is over transaction
parties.
4 Ownership of goods. Is that of co-venturers Remains with the consignor though
possession of goods passes from
the consignor to the consignee
5 Profit earned Belongs to the co- Belongs to the consignor and not to
venturers the consignee
6 Account Sales Is not sent by one coventurer to
another Is sent by the consignee to
the consignor
7 Management The co-venturers enjoy The consignee being an agent has
full powers to manage the no powers except that he has
business & contribute simply to obey instructions of his
funds for the business principal

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 8 Finance Money is contributed by All money invested by the
all co-venturers in a consignor
certain proportion
9 Risk Risk is shared between Sales are made at consignor‘s risk
venturers

Difference between Joint Venture and Partnership:

The following are differences between Joint Venture and Partnership:
No. Point of Distinction Joint Venture Partnership
1 Name of the firm. It is carried on without a firm‘s It is carried on with firm‘s
name. name.
2 Co-venturers/ Parties are called co-venturers. Parties are called partners.
Partners

3 Continuity Temporary partnership and comes Continuous and does not end
to an end after the completion of a after the completion of a
particular venture. particular venture.
4 Liability Limited to the adventure Unlimited to the extent of
concerned for which they agree to their business and private
contribute capital and share profits estate.
or losses.
5 Location of Business It is generally local. It may be located at different
places.
6 Position of a Minor In it, minor is generally not A minor, can be admitted
admitted. only for benefits.
7 No. of Partners/ No limit in it Limited to 20 in ordinary
Members trade and 10 in banking
business.

Accounting Entries
There may be three ways of maintaining the books of account for the joint venture business. They
are:
(a) Where separate books of accounts are maintained
(b) Where no separate books of accounts are maintained
(c) Memorandum Joint Venture

(a) When Separate Books are Maintained

As the business duration is short, the books of accounts are not very comprehensive. The basic
purpose is to know profit or loss on account of the joint venture.

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 - Like a normal P & L A/c, a Joint Venture A/c is opened which records all transactions
related to the activities carried out. The net result of this account will be either profit or loss.
- To record cash/bank transactions a Joint Bank A/c is maintained. This could take a form
of cash book with cash and bank column. It will record, the initial contributions made by
each co-venturer, proceeds of sales, expenses and distribution of net balances among co-
venturers on dissolution of the venture.
- To record transaction related to co-venturers, ―Co-Venturers‘ personal A/cs are also
maintained.
The accounting entries are normally as follows:
No. Transaction Entry
1 Contribution of co-venturers Joint Bank A/c Dr.
To, Co-Venturers A/c
2 Goods sent by co-venturer out of his own stock Joint Venture A/c Dr.
To, Co-Venturers A/c
3 Expenses paid by co-venturers Joint Venture A/c Dr.
To, Co-Venturers A/c
4 Materials purchased out of joint venture funds Joint Venture A/c Dr.
To Joint Bank A/c
5 For expenses out of joint bank A/c Joint Venture A/c Dr.
To Joint Bank A/c
6 For goods sold for cash Joint Bank A/c Dr.
To Joint Venture A/c
7 Contract / sale price received in form of shares / cash Joint Bank A/c Dr.
Shares A/c Dr.
To Joint Venture A/c
8 Commission / salary to co-venturers Joint Venture A/c Dr.
To Co-Venturers A/c
9 Unsold goods taken over by co-venturers Co-Venturers A/c Dr.
To Joint Venture A/c
10 Shares taken over by co-venturers Co-Venturers A/c Dr.
To Shares
11 If shares are sold in open market Joint Bank A/c Dr.
To Shares
12 For profit on joint venture Joint Venture A/c Dr.
To Co-Venturers A/c
13 For loss on joint venture Co-Venturers A/c Dr.
To Joint Venture A/c
14 For final distribution of funds Co-Venturers A/c Dr.
To Joint Bank A/c

Illustration 1
Ada and Amit entered into a joint venture to buy and sale toys for the Christmas festival. They
opened a Joint Bank Account. Ada deposited 200,000frs and Amit 150,000frs. Ada supplied Toys
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worth 25,000frs and Amit supplied decoration material worth 15,000frs. The following payments
were made by the venture:
(a) Cost of Toys purchased 250,000frs
(b) Transportation charges 12,000frs
(c) Advertising 7,500frs and Sundry Expenses 2,500frs. They sold toys for 400,000frs for cash.
Ada took over some toys for 30,000frs and Amit took over remaining for 10,000frs. The profit or
losses were to be shared equally between co-venturers. Prepare Joint Venture Account, Joint Bank
Account and each Co-Venturer‘s Account.

Illustration 2
Peter and Mary doing business separately as building contractors undertake jointly to build a
skyscraper for a newly started public limited company for a contract price of 10,000,000frs payable
as 8,000,000frs in cash and the balance by way of fully paid equity shares of the new company. A
Bank Account was opened for this purpose in which Peter paid 2,500,000frs and Mary
1,500,000frs. The profit sharing ratio was agreed as 2:1 between Peter and Mary. The transactions
were:
(a) Advance received from the company 5,000,000frs
(b) Wages to contractors 1,000,000frs
(c) Bought materials 6,000,000frs
(d) Material supplied by Peter 1,000,000frs
(e) Material supplied by Mary 1,500,000frs
(f) Architect‘s fees paid from Joint Bank Account 2,100,000frs
The contract was completed and the price was duly paid. The joint venture was duly closed by
Peter taking all the shares at 18,00,000frs and Mary taking over the balance material for
300,000frs. Prepare the Joint Venture Account, Joint Bank Account. Co-venturer‘s Accounts and
Shares Account.
(b) When no Separate Books of Accounts are Maintained
The co-venturers may decide not to keep separate books of account for the venture if it is for a
very short period of time. In this case, all co-venturers will have account for the transactions in
their own books. Here no Joint Bank Account is opened and the co-venturers do not contribute in
cash. Goods are supplied by them from out of their stocks and expenses for the venture are also
met by them. Each co-venturer will prepare a Joint Venture A/c and the other Co-Venturer‘s A/c
in his books. Naturally, the profit or loss is separately calculated by each co-venturer. Each co-
venturer will take into A/c all transactions i.e. done by himself and by his co-venturer as well.
In books of Co-venturer A In books of co-venturer B
When goods are supplied and expenses paid by A
Joint Venture A/c Dr. To, Goods A/c To, Cash / Joint Venture A/c Dr. To, A‘s A/c
Bank A/c
When goods are supplied by B and expenses paid by B

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 Joint Venture A/c Dr. To, B‘s A/c Joint Venture A/c Dr. To, Goods A/c To,
Cash / Bank A/c
When advance is given by A to B or bill accepted by A
B‘s A/c Dr. To, Cash / Bank A/c To, B/P A/c Cash / Bank A/c Dr. B/R A/c Dr. To, A‘s
A/c
When sale proceeds are received by A
Cash / Bank A/c Dr. To, Joint Venture A/c A‘s A/c Dr. To, Joint Venture A/c
When sale proceeds are received by B
B‘s A/c Dr. To, Joint Venture A/c Cash / Bank A/c Dr. To, Joint Venture A/c
For unsold goods taken over by A
Goods A/c Dr. To Joint Venture A/c A‘s A/c Dr. To Joint Venture A/c
For unsold goods taken over by B
B‘s A/c Dr. To, Joint Venture A/c Goods A/c Dr. To, Joint Venture A/c
For profit on joint venture business
Joint Venture A/c Dr. To, B‘s A/c To, P & L A/c Joint Venture A/c Dr. To, A‘s A/c To, P &
L A/c
For loss on joint venture business
B‘s A/c Dr. P & L A/c Dr. To, Joint Venture A/c A‘s A/c Dr. P & L A/c Dr. To, Joint
Venture A/c

Illustration 4
John and Smith entered into a joint venture business to buy and sale garments to share profits or
losses in the ratio of 5:3. John supplied 400 bales of shirting at 500frs each and also paid 18,000frs
as carriage & insurance. Smith supplied 500 bales of suiting at 480frs each and paid 22,000frs as
advertisement & carriage. John paid 50,000frs as advance to Smith. John sold 500 bales of suiting
at 600frs each for cash and also all 400 bales of shirting at 650frs each for cash. John is entitles for
commission of 2.5% on total sales plus an allowance of 2,000frs for looking after business. The
joint venture was closed and the claims were settled. Prepare Joint Venture Account and Smith‘s
Account in the books of John and John‘s Account in the books of Smith.

(c) MEMORANDUM JOINT VENTURE ACCOUNT

When all the parties keep accounts, the method adopted for recording the transactions relating to
joint venture, is called Memorandum Joint venture method. Here each CoVenturer records only
those joint venture transactions which are affected by him with the help of a personal account
designed as ‗Joint Venture with……….(Name of the other CoVenturer)……Account‘. It is
debited with the amount of purchases/supplies made and expenses incurred by the Venturer. Each
Co-Venturer sends a periodic statement of joint venture transactions effected by him only, to the
other Co-Venturer and on receipt of the aforesaid statement, each Co-Venturer prepares
Memorandum Joint Venture Account in order to ascertain the profit/loss on Joint Venture
transactions. Since this account is in fact, not a part and parcel of double entry system the word
memorandum is prefixed.

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Journal Entries:
The journal entries which may be required at any point of time, are summarized below: 1
1.(a) On receipt of any amount / Bills
Receivable from other Co-Venturer:
Cash/Bank/Bills Receivable A/c Dr.
To, Joint Venture with …………..A/c

1.(b) On discounting Bills Receivable:

Bank A/c Dr. (with net proceeds)
Joint Venture with …………..A/c Dr (with discount)
To, Bills Receivable A/c (with total)

2. On purchase of goods:
Joint Venture with …………..A/c Dr. (with total)
To, Cash/Bank A/c (with cash purchase)
To, Supplier‘s A/c (with credit purchase)

3. On making payment to supplier

Supplier‘s A/c Dr. (with total)
To, Cash/Bank/Bills Payable A/c (with payment made)
To, Joint Venture with …………..A/c (with discount received)

4. On supply of goods out of own stock:

Joint Venture with …………..A/c Dr. (if supplies at cost)
To, Purchases/Goods sent on Joint Venture (if supplies at profit)
A/c To, Sales A/c

5. On payment of expenses:
Joint Venture with …………..A/c Dr (with total)
To, Cash/Bank A/c (with cash expenses)
To, Creditor‘s A/c (with outstanding expenses)

6. On sale of goods:
Cash/Bank A/c Dr. (with cash sales)
Customer‘s A/c Dr. (with credit sales)
To, Joint Venture with …………..A/c (with total)

7. On receiving payment from a customer:

Cash/Bank A/c Dr. (with the payment received)
Joint Venture with …………..A/c Dr. (discount allowed/bad debt)
To, Customer‘s A/c (with the payment received)

8. On taking away of unsold goods:

Goods Sent on Joint Venture A/c Dr.
To, Joint Venture with …………..A/c

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 9. On considering some commission/salary to
the CoVenturer:
Joint Venture with …………..A/c Dr.
To, Commission/Salary A/c

10. On recording the share of Profit/Loss:

(a) When profit-
Joint Venture with …………..A/c Dr.
To, Profit & Loss A/c
(b) When loss-
Profit & Loss A/c Dr.
To, Joint Venture with …………..A/c

11. On settlement of balance of Joint Venture

with..…..A/c:
(a) When there is a debit balance:
Cash/Bank A/c Dr.
To, Joint Venture with
…………..A/c
(b) When there is a credit balance:
Joint Venture with …………..A/c
Dr.
To, Cash/Bank A/c

Illustration 5
Bharat and Sujit joined together as co-ventures for equal share in profits through sale of television
cabinets. On March 31, 2015. Bharat purchased 2,000 cabinets at 1,250frs each for cash and sent
1,500 of these to sujit for sale, the selling price of each being 1,300frs. All the cabinets were sold
by April 30, 2015 by both and the proceeds collected. Each venturer recorded in his books only
those transactions concluded by him, final profit and loss being ascertained through a
Memorandum joint venture Account. The expenses met by the venturer were:
Bharat: Freight and insurance 12,000
Selling expenses 5,000
Sujit: Clearing charges 1,000
Selling expenses 12,000

Final settlement between the venturers took place on May 31, 2015. You are required to show:
(a) joint venture with sujit A/c in the books of Bharat
(b) Joint venture with Bharat A/c in the books of sujit; and
(c) Memorandum joint venture Account.

Illustration 6
M and N decided to work in partnership with the following scheme, agreeing to share profits as
under: M — ¾th share. N—¼th share. They guaranteed the subscription at par of 1,000,000
shares of 1frs each in U Ltd. And to pay all expenses up to allotment in consideration of U Ltd.

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issuing to them 50,000 other shares of 1frs each fully paid together with a commission @ 5% in
cash which will be taken by M and N in 3 : 2. M and N introduced cash as follows:
Details frs
M— Stamp Charges, 4,000
etc.,
Advertising Charges 3,000
Printing Charges 3,000
N— Rent 2,000
Solicitor‘s Charges 3,000

Application fell short of the 1,000,000 shares by 30,000 shares and N introduced 30,000frs for the
purchase of those shares. The guarantee having been fulfilled, U Ltd. handed over to the venturers
50,000 shares and also paid the commission in cash. All their holdings were subsequently sold by
the venturer N receiving 18,000frs and M 50,000frs. Write-up necessary accounts in the books of
both the parties on the presumption that Memorandum Joint Venture Account is opened for the
purpose.

Joint Venture Business on Consignment Principle

The co-venturers may decide to appoint an agent for selling goods on their behalf on consignment
basis. He is allowed expenses and commission on sales. The agent would remit the cash to co-
venturers. In such case in addition to Joint Venture A/c and the co-venturer‘s A/c a separate
Account is maintained for the agent as well. The Agent‘s A/c is debited with the sales proceeds
received by him and credited with the expenses incurred and commission payable to him. Hence
additional entries are:
(i) Goods sold by the agent : Agent‘s A/c Dr. To, Joint Venture A/c
(ii) Expenses & commission entitled to agent: Joint Venture A/c Dr. To, Agent‘s A/c
(iii) Payment received from agent: Bank A/c Dr. To, Agent‘s A/c
(iv) Cash paid by agent to co-venturers: Co-Venturers‘ A/c Dr. To, Agent‘s A/c

Illustration 7
A and B enter into joint venture sharing profit 3/5ths and 2/5ths. A is to purchase timber in Madhya
Pradesh and forward it to B in Delhi. A purchases timber worth 10,000frs and pays 1,000frs as
expenses. B received the consigned and immediately accepted A‘s draft for 8,000frs. A gets
discounted for 7,850frs. B sold the timber for 16,000frs. He had to spend 350frs for fire insurance
and 300frs for other expenses. Under the agreement he is entitled to a commission of 5% slaes.
Give ledger accounts in the books of A and B.

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