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Joint Venture Accounts: Key Features

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Meaning and Features of Joint Venture Account

A Joint Venture Account is an agreement where two or more parties join to create a partnership for a specific business venture or purpose for a particular period.


Two individuals or firms join to create a partnership for a specific purpose for a short duration or it might be temporary also. This partnership does not use the name of the company. The profits or losses are shared in the agreed ration. Some of the features of Joint Ventures are discussed in this article.

What is a Consignment Agreement?

If goods are sent by their owner to the dealer or the agent who accepts to sell the goods, it is done under a consignment agreement. Here the owner is referred to as the consignor and the other party is referred to as the consignee. The consignee has the right to return the goods without any obligation, in case they are not sold. The consigner remains to be the owner until the goods are sold.

Features of Joint Venture Agreement

The features of the joint venture are discussed below:

  1. Duration: This venture is formed for a short duration and so, it is termed as a temporary partnership.

  2. Parties: The parties or the individuals who join to form this venture are called the co-venturers.

  3. Funds: The funds used for each business are brought to the joint venture account.

  4. Sharing of Profits or Losses: The profits or losses are shared as per the terms agreed between the co-venturers. If there is no such agreement, it is shared equally.

  5. Computation of Profits or Losses: The profit or loss is computed by the co-venturers on the completion of their business or venture.

Difference Between Consignment and Joint Venture

There are a lot of differences between consignment and joint venture accounts. Some of the differences between a joint venture and consignment are explained below.

  1. Meaning: Joint venture is a temporary partnership between two or more parties for a specific business whereas Consignment is just an act of sending the goods by the owner to the seller to sell the goods. 

  2. Parties: The parties in a joint venture are called co-venturers whereas in a consignment act they are referred to as the consignor and the consignee.

  3. Relationship: In a joint venture, the relationship between the parties are like partners whereas in a consignment it is that of a principal and agent. 

  4. Rights: The co-venturers in a joint venture have equal rights whereas in a consignment, the consignor has the rights of the owner or the principal and the consignee has the rights of a seller or an agent. 

  5. Share of Profit/Loss: In a joint venture, the profit or loss is shared as per the agreement whereas in a consignment the consignee receives a commission based on the sale of goods. 

  6. Ownership: In a joint venture, the co-ventures are the owners whereas in a consignment only the consignor remains the owner. 

  7. Communication: In a joint venture, the parties keep sharing the information regularly whereas in a consignment the consignee just sends an account to the consignor.

  8. Maintenance of Accounts: The co-venturers maintain accounts in various methods as agreed in their venture, whereas the parties of the consignment have only one method of accounts maintenance. 

  9. Continuity: In a joint venture, the business comes to an end once the purpose is completed whereas it depends on the consignor and the consignee to decide on the continuity.

  10.  Basis of Accounting: In a joint venture, they follow the cash basis of accounting whereas in a consignment they follow the accrual basis of accounting.

Difference between the Joint Venture and Consignment Chart

Basis

JV

Consignment

Relationship between two entities

Like that of co-owners 

Consignor and consignee here are principal and agent respectively

Ownership & risk of goods

Remain with coventures

Remain with consignor

Sales of account

One coventure doesn’t send any account sales to another

Prepared and sent by the consignee to the consignor

P/L on a transaction 

Shared by co-venturers on an agreed ratio

Shared only by the consignor

The subject matter of dealing

Any movable or immovable property

Only movable property 

Joint Ventures' Purpose:

The number of joint ventures that can be formed is limitless. Joint ventures can be formed by two or more companies from the same industry, or by two companies from different industries, or by two companies from separate countries, or by two companies from different industries and countries. As a result, the scope of organizing a joint venture is limitless, and they can be formed and profited anywhere mutual collaboration is required.


Joint ventures are particularly widespread in the oil business, and they frequently involve a local and a foreign company. In the oil industry, JVs are frequently considered as a feasible business strategy because the firms can complement their capabilities while the JV provides the foreign company with a geographic presence. The most well-known company is Fuji-Xerox. P&G chose a joint venture with Godrej primarily to gain access to the company's distribution network and manufacturing facilities.


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FAQs on Joint Venture Accounts: Key Features

1. What exactly is a joint venture from an accounting perspective?

A joint venture is a temporary business arrangement where two or more individuals or companies, known as co-venturers, agree to work together on a specific project or business activity. From an accounting standpoint, it's treated as a short-term partnership created for a particular purpose, like constructing a building or consigning goods. Once the project is complete, the venture is dissolved.

2. What are the main features that define a joint venture?

A joint venture has several distinct features that set it apart from other business structures. The most important ones include:

  • Agreement: It is based on a formal agreement between the co-venturers outlining terms, contributions, and profit/loss sharing ratios.
  • Specific Purpose: The venture is formed for a single, well-defined business goal and has a limited duration.
  • Shared Profits and Losses: All co-venturers share the profits or losses in a pre-agreed ratio.
  • Pooled Resources: Co-venturers contribute capital, skills, or other resources to the venture.
  • Joint Control: Typically, all co-venturers have a say in the management and operation of the venture.

3. What are the main advantages of forming a joint venture?

Businesses form joint ventures to gain several key advantages that they might not achieve alone. These benefits include access to greater resources like capital and technology, the ability to enter new markets or distribution channels, and the sharing of financial and operational risks among the co-venturers. It also allows for combining specialised staff and expertise for a specific project.

4. What type of account is the 'Joint Venture Account'?

The Joint Venture Account is a Nominal Account. This is because its primary purpose is to determine the financial outcome of the venture. Just like a Profit & Loss Account, all expenses and losses related to the venture are debited to it, while all incomes, revenues, and gains are credited. The final balance of this account reveals the net profit or net loss from the joint venture.

5. What are the different methods for recording joint venture transactions in accounting?

There are two primary methods for maintaining the accounts of a joint venture, depending on its scale and the agreement between co-venturers:

  • When Separate Books are Kept: For larger ventures, a completely new set of books is opened. This involves creating a Joint Bank Account, a Joint Venture Account, and Co-venturers' Accounts.
  • When No Separate Books are Kept: For smaller ventures, no separate books are created. Each co-venturer records all transactions in their own existing books. A 'Memorandum Joint Venture Account' is often prepared in this case to calculate the overall profit or loss.

6. How is a joint venture different from a partnership?

While both involve collaboration, a joint venture differs from a partnership mainly in its scope and duration. A partnership is typically formed for carrying on a business over a long period, with no defined end date. In contrast, a joint venture is created for a specific, temporary purpose and dissolves automatically once that purpose is achieved. The parties in a joint venture are called co-venturers, not partners.

7. Why is a Memorandum Joint Venture Account prepared?

A Memorandum Joint Venture Account is not part of the official double-entry system. It is prepared as a simple statement when no separate set of books is maintained for the venture. Since each co-venturer only records their own transactions, this memorandum account is used to bring together all transactions from all parties in one place. Its sole purpose is to easily calculate the total profit or loss of the venture before it's distributed.

8. Are there any potential disadvantages or risks in a joint venture?

Yes, despite the benefits, joint ventures carry certain risks. The objectives of the co-venturers might not be fully aligned, leading to conflicts and disputes. There can be a clash of management styles or business cultures. Additionally, there's a risk of an imbalance in the contributions of resources, expertise, or effort, which can strain the relationship between the parties.