Meaning of Joint Ventures and Fundamentals of Accounting

MEANING of JOINT VENTURE

A joint venture is an agreement between two or more parties to combine their resources for the goal of completing a certain job or transaction. This task could be a new project or a different type of commercial activity. Each partner of a joint venture is liable for the earnings, losses, and expenditures associated with it. The enterprise, on the other hand, is a separate entity from its participants.

EXAMPLE of JOINT VENTURE

Joint venture business When there is an advantage to be gained by pooling the resources of individual business entities for a limited period or for a specific commercial transaction, a joint venture business is appropriate. For example, if the order is for 1000 MT of copper, it can be imported at a reasonable cost. Separate company organizations A and B both require copper for their respective businesses, but in fewer quantities than 1000 MT. They pool their funds and use a joint venture founded specifically for this reason to import 1000 MT. A joint venture is founded by two independent commercial entities when they bid in an auction or start a business for a specified purpose, such as building highway roads for the government.

JOINT-VENTURE ACCOUNTING

Coming to the Joint-Venture accounting, the parties can maintain the records of the joint venture business transactions in different ways, such as:

1) Entities maintain the records of the joint business transactions, in their own business entity books, and reconcile them with other ventures as and when required, including at the end for final settlement.

2) SEPARATE SET OF BOOKS OF ACCOUNTS is maintained for and by the joint venture business including a profit loss account to arrive at the profit. At the time of closure of business, all the books of accounts are closed after the distribution of profits and assets left out in an agreed manner. In this case, it may be necessary to open a joint bank account to operate the financial transactions of the business. Apart from this, a joint venture account is prepared on the lines of a profit & loss Account and also individual accounts of partners in the venture.

Learn more about Fundamentals of Accounting Joint Venture

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