Joint Venture Worked Example – No Separate Books of Accounts

Question 6

- They can operate a different kind of business apart from what they have
been conducting individually.
- Sharing of responsibilities. Each person has experience in some aspect of
the business. They will contribute their experiences to make a profit that
can be shares between them

Memorandum Joint Venture Account

Cost of goods (10000 + 15000) 25000 Revenue 35000
Costs incurred (800 + 900) 1700
Commission (10% X 35000) 3500
Profit on Joint Venture
- Greave (2/3 X 4800) 3200
- Hurst (1/3 X 4800) 1600
35000 35000
Greaves account with the joint venture
Cost of goods 15000 Revenue 35000
Costs incurred 900
Commission 3500
Profit on Joint Venture 3200
Bank: Amount paid to Hurst ?? 12400
35000 35000

Hurst account with the joint venture

Cost of goods 10000
Costs incurred 800
Profit on joint venture 1600 Bank: Amount received from Greaves 12400
12400 12400
Advantages:
- More capital
- Continuity of existence compared to a joint venture
- There will be a formalized agreement
- More ideas, knowledge and expertise and a long term relationship can be
developed

Disadvantage:
- Unlimited liability
- Decision making is more difficult
- Partners are jointly responsible debts
- Partners are bound by agreement