Joint Venture
Introduction :
A joint venture is an association of two or more than two persons who have combined for the execution of a specific transaction and divide the profile or loss thereof in the agreed ratio. For example, if A and B undertake the job of construction of a school building for a sum of Rs. 100000 their coming together for this specific job will be termed as a joint venture and each one of them will be termed as co-venturer. The venture will be over as soon as this transaction is over i.e., the school building is completed. Joint venture agreements can be made for similar other transactions, e.g., joint consignment of goods, underwriting of the shares or debentures issued by a particular company, purchasing and selling of a specific property etc.
The essential features of a joint venture agreement can be put as follow:
I. There is an agreement between two or more than two persons
II. The agreement is made for the execution of a specific venture.
III. The profit or loss on account of the venture is shared y the ventures in the agreed ratio. However, in the absence of any agreement between the ventures, the profits and losses are to be shared equally.
IV. The agreement regarding the venture is automatically over as soon as the transaction is completed.
Joint venture and Partnership
According to the Indian partnership Act. “Partnership is the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.” Thus, both in joint venture and partnership there is some business activity whose profit (or loss) is agreed to be shared by two or more than two persons. As a matter of fact in law, a joint venture is treated as a partnership. Of course, a partnership covers or is meant to cover a long period whereas a joint venture is only for a limited purpose sought to be achieved in a short period. On account of this reason, joint venture is also sometimes termed as a temporary partnership or ‘partnership for a specific venture’ or ‘particular partnership’
Joint venture and Consignment
The difference between joint venture and consignment can be put as follows:
a) Relationship: Joint venture is a sort of temporary partnership the relation between co-venture is that of partners. However, consignment is a sort of joint relationship in which the consignor is a principal and the consignee is an agent.
b) Sharing of profits: In case of joint venture, the profits or losses are shared by the co-ventures in the agreed ratio. While in case of consignment, consignor and consignee do not share their profits or losses of the business. The consignee simply gets commission as reward for the services rendered by him.
c) Contribution of funds: in case of joint venture the funds for the venture are provided by the co-ventures. While in case of consignment, the consignee does not provide any funds. All funds are provided by the consignor only.
d) Risk: ln case of joint venture the business operations are at the risk of all the co-ventures. While in case of consignment, consignee carries on business operations at the risk of the consignor.
e) Rights: In case of joint venture, the co-ventures have rights to buy or less or make payments on account of the joint venture. While in case of consignment, the consignee has to work in accordance with the instructions of his principal i.e. the consignor. The consignee has no independent rights on his own.
Accounting Records
There are three ways in which Joint Venture Accounts can be kept. They are as follows:
1. When Separate set of Books for the venture are maintained, this will be necessary when venture is of a large magnitude.
2. When One Venturer keeps the accounts. In this case entire work is entrusted to one of the venturers and the rest simply contribute their share of investment and place it at the disposal of the working venturer.
3. When All Venturers keep Accounts. Where venture is not of such magnitude as to warrant a distinct set of books being kept, each venturer will record only such transactions as directly concern him.
When separate set of books are maintained
Where a complete set of books are maintained for the joint venture, following accounts are opened.
Ø Joint bank Account
Ø Joint Venture Account
Ø Personal Accounts of Each Venturer
In this method parities first pay their contribution to joint funds to the Joint Bank Account and their payments on joint account are made out of Joint Bank Account.
Joint Venture Account is of the nature of an ordinary Trading and Profit & Loss Account. It is debited with goods purchased and expenses incurred, while credited with the sales made. Its valance shows the profit or loss incurred on the joint venture.
Personal accounts of each Venturer are also opened. It is credited with the amount of contribution made by him to the joint funds and his share of profit (and debited in case of loss).
