Kalu and Nkechi entered into a joint venture to trade in timber, maintaining a separate se… — JAMB UTME

Kalu and Nkechi entered into a joint venture to trade in timber, maintaining a separate set of books. They opened a Joint Bank Account to which Kalu paid $\text{₦}500,000$ and Nkechi paid $\text{₦}300,000$ . Goods were bought for $\text{₦}600,000$ and carriage expenses of $\text{₦}50,000$ were paid out of the Joint Bank Account. All goods were sold for $\text{₦}950,000$ and deposited into the Joint Bank Account. Calculate the net profit of the joint venture in naira.

Answer: 300000 ₦

Answer

The net profit of the joint venture is ₦300,000.

In the separate set of books method, the Joint Venture Account acts as a Trading and Profit & Loss Account. Revenue from sales (₦950,000) is credited, while expenses including purchases (₦600,000) and carriage (₦50,000) are debited. The credit balance of ₦300,000 represents the net joint profit.

Step-by-Step Solution

Identify total joint venture revenue

Sales revenue = ₦950,000

Sales proceeds received and deposited into the Joint Bank Account are credited to the Joint Venture Account.

Calculate total venture expenses

Total expenses = ₦600,000 + ₦50,000 = ₦650,000

Purchases and carriage expenses paid out of the Joint Bank Account are debited to the Joint Venture Account.

Determine net profit

Net profit = ₦950,000 - ₦650,000 = ₦300,000

Net profit is calculated by finding the excess of total revenue over total expenses in the Joint Venture Account.

Key Concept

Joint Venture Accounting: Separate Set of Books Method

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