Audu and Bisi opened a Joint Bank Account for a venture in agro-processing equipment, main… — JAMB UTME

Audu and Bisi opened a Joint Bank Account for a venture in agro-processing equipment, maintaining a separate set of books. They agreed to share profits and losses in the ratio of $3:2$ . Audu and Bisi contributed $\text{₦}1,500,000$ and $\text{₦}1,000,000$ respectively into the Joint Bank Account.

Transactions executed during the venture were as follows:
- Goods purchased through Joint Bank: $\text{₦}1,800,000$
- Freight and carriage paid through Joint Bank: $\text{₦}120,000$
- Goods supplied directly by Audu from his private stock: $\text{₦}300,000$
- Selling expenses paid directly by Bisi from personal funds: $\text{₦}80,000$
- Management commission due to Audu: $5\%$ on gross sales revenue
- Total sales proceeds deposited into Joint Bank: $\text{₦}3,000,000$
- Unsold stock taken over by Bisi at an agreed value of $\text{₦}150,000$

What is the final cash amount in Naira payable to Bisi from the Joint Bank Account upon settlement?

Answer: 1210000 ₦

Answer

The final cash amount payable to Bisi upon settlement of the joint venture is ₦1,210,000.

Under the separate set of books method, the Joint Venture Account functions like a Trading and Profit & Loss Account to determine net profit or loss. Credit entries comprise sales (₦3,000,000) and closing stock taken over (₦150,000), totaling ₦3,150,000. Debit entries comprise purchases (₦1,800,000), freight (₦120,000), goods supplied by Audu (₦300,000), Bisi's selling expenses (₦80,000), and Audu's commission of 5% on sales (₦150,000), totaling ₦2,450,000. This leaves a net profit of ₦700,000. Bisi's 2/5 share of profit is ₦280,000. In Bisi's Personal Account, credits include capital (₦1,000,000), expenses paid (₦80,000), and profit share (₦280,000), giving ₦1,360,000. Subtracting the debit for stock taken over (₦150,000) leaves ₦1,210,000 payable to Bisi from the Joint Bank.

Step-by-Step Solution

Calculate total credits to the Joint Venture Account

₦3,150,000

Includes sales revenue received via Joint Bank (₦3,000,000) and the agreed value of unsold stock taken over by Bisi (₦150,000).

Calculate total debits (costs, expenses, and commission) in the Joint Venture Account

₦2,450,000

Sum of purchases (₦1,800,000), carriage (₦120,000), goods supplied by Audu (₦300,000), selling expenses paid by Bisi (₦80,000), and Audu's commission (5% of ₦3,000,000 = ₦150,000).

Determine the net joint venture profit and share allocation

Net profit = ₦700,000; Bisi's share = ₦280,000

Net profit is ₦3,150,000 - ₦2,450,000 = ₦700,000. Bisi's profit share in the 3:2 ratio is (2 / 5) * ₦700,000 = ₦280,000.

Balance Bisi's Personal Account to determine final cash distribution

₦1,210,000

Bisi is credited with her capital contribution (₦1,000,000), expenses incurred (₦80,000), and profit share (₦280,000), totaling ₦1,360,000. She is debited for stock taken over (₦150,000). The net credit balance to be paid to her from the Joint Bank is ₦1,360,000 - ₦150,000 = ₦1,210,000.

Key Concept

Joint Venture Accounting under Separate Set of Books Method

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