2. Chapter 7 Joint Venture

3. Joint Efforts For most large-scale project or program, a single business has not enough strength both in finance or technology to undertake it as a whole. However, it would be a strong point for them to undertake a particular part of the project. Under this circumstance, joint efforts with other business is necessary to undertake the project. For example, making airplane, would involve many businesses, one undertake to make its wing, one undertake to manufacture its engine and one undertake to produce fuselage and so on.

4. Joint Efforts in Business Partnership. Consignment (include H.O and Branches). Joint venture

5. Definition of joint venture Joint venture is a contractual arrangement whereby two or more parties undertake an economics activity that is subject to joint control.

6. Conceptual Framework for Joint Venture Joint control is the contractually agreed sharing of control over an economic activity. A venturer is a party to a joint venture and has joint control over that joint venture. An investor in a joint venture is a party to a joint venture and does not have join control over that joint venture.

7. IASs identifies three broad types of joint venture Jointly controlled operation Jointly controlled assets Jointly controlled entities

8. Joint Controlled Operation Two or more venturers are involve in one business in order to manufacture, market and distribute jointly a particular product. Different parts of the manufacturing process are carried out by each of the venturers. Each venturer bears its own costs and takes a share of the revenue from the sale of the product.

9. Joint Controlled Assets Based on the joint controlled operation, the joint venture would involve in using some of fixed assets. Therefore, the depreciation of the fixed assets are not accounting for in separately but in the joint controlled.

10. Joint Controlled Entities A jointly controlled entity is a joint venture which involves the establishment of a corporation, partnership or other entity in which each venturer has an interest. The entity operates in the same way as other enterprise, except that a contractual arrangement between the venturers establishes joint control over the economic activity of the entity. A jointly controlled entity controls the assets of the joint venture, incurs liabilities and expenses and earns income. It may enter into contracts in its own name and raise finance for the purpose of the joint venture activity. Each venturer is entitled to a share of the results of the venture controlled entity, although some jointly controlled entities also involve a sharing of the output of the joint venture.

11. Comparing Concept of Joint Venture with Partnership Joint venture is more broad concept than partnership. Some joint ventures would be represented by partnerships. As far as accounting concept, partnership has its own accounting system. However, sometimes, transaction in joint venture would be recorded in several accounting systems.

12. Accounting for Joint Venture Open a Joint venture a/c in its accounting system. Record all basic transaction when it occurred and interest, if it’s available, in each venturer’s joint venture books. At the end of each joint venture period, ascertain any balance c/d and record it in related books. Prepare the memorandum to calculate the profit of the joint venture, and split it in accordance with the agreed ratio. Record the shared profit in each venturer’s books and calculate the amount of owing by and the amount owing to

13. Examples of Accounting for Joint Venture Example 7.1 is for opening joint venture a/c Example 7.2 is for accounting treatment of basic transaction in joint venture. Example 7.3 is for accounting treatment of closing stock (stock balance c/d) Example 7.4 is for comprehensive accounting treatment involving interest and depreciation on fixed assets used by the joint venture.

14. Accounting for Depreciation in Joint venture Two approaches in accounting for depreciation in joint venture 1) Transfer Fixed assets into joint venture. 2) Depreciate to joint venture.

15. Foreign Joint Venture Because foreign joint venture would involve the translation of foreign currency, we will concentrate it into study of Chapter 17 Accounting for Foreign transactions