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Difficulty: EasyJoint Venture Accounting: No Separate Books (Memorandum Method)

Tunde and Obinna entered into a joint venture to trade in commodities, maintaining no separate set of books. Tunde purchased goods for N40,000\text{N}40,000 and paid freight charges of N5,000\text{N}5,000. Obinna sold all the goods for N60,000\text{N}60,000. What is the total profit generated by the joint venture as shown in the Memorandum Joint Venture Account?

  1. N15,000\text{N}15,000Answer
  2. B
    N20,000\text{N}20,000
  3. C
    N55,000\text{N}55,000
  4. D
    N105,000\text{N}105,000

Answer

N15,000\text{N}15,000
The Memorandum Joint Venture Account combines all revenue and costs of the venture. Subtracting total costs (purchase cost N40,000\text{N}40,000 + freight N5,000=N45,000\text{N}5,000 = \text{N}45,000) from total revenue (N60,000\text{N}60,000) gives the net profit of N15,000\text{N}15,000.

Step-by-Step Solution

1
Calculate total revenue from sales made by the joint venture.
Total Revenue = N60,000\text{N}60,000
Sales proceeds received by Obinna represent the total joint venture revenue.
2
Calculate total costs and expenses incurred by all co-venturers.
Total Costs = N40,000+N5,000=N45,000\text{N}40,000 + \text{N}5,000 = \text{N}45,000
Under the Memorandum method, purchases and all direct expenses incurred by co-venturers are summed to determine total venture cost.
3
Deduct total costs from total revenue to compute net venture profit.
Net Profit = N60,000−N45,000=N15,000\text{N}60,000 - \text{N}45,000 = \text{N}15,000
Memorandum Joint Venture Profit = Total Sales Revenue - Total Venture Costs.

Key Concept

Calculation of total profit under the Memorandum Joint Venture method
Estimated Time:45s
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Topics

Joint Venture Accounting: No Separate Books (Memorandum Method)

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