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Difficulty: MediumJoint Venture Accounting: Separate Set of Books Method

Tayo and Emeka entered into a joint venture to supply construction materials, maintaining a separate set of books. Tayo contributed ₦400,000\text{₦}400,000 and Emeka contributed ₦200,000\text{₦}200,000 into a Joint Bank Account. Materials purchased using Joint Bank funds cost ₦350,000\text{₦}350,000, and direct expenses paid from the Joint Bank totaled ₦150,000\text{₦}150,000. Tayo paid additional transport costs of ₦30,000\text{₦}30,000 from his personal funds. Total sales proceeds of ₦750,000\text{₦}750,000 were deposited into the Joint Bank, while Emeka took over unsold inventory valued at ₦40,000\text{₦}40,000. Profits and losses are shared between Tayo and Emeka in the ratio 3:23:2. What is the net profit of the joint venture in Naira?

Answer: 260000 Naira

Answer

The net profit of the joint venture is ₦260,000\text{₦}260,000.
To find the net profit of the joint venture, construct the Joint Venture Account under the separate set of books method. Debits include materials (₦350,000\text{₦}350,000), direct bank expenses (₦150,000\text{₦}150,000), and transport costs incurred personally by Tayo (₦30,000\text{₦}30,000), totaling ₦530,000\text{₦}530,000. Credits include sales proceeds deposited into the Joint Bank (₦750,000\text{₦}750,000) plus unsold inventory absorbed by Emeka (₦40,000\text{₦}40,000), totaling ₦790,000\text{₦}790,000. The net venture profit is the excess of credits over debits: ₦790,000−₦530,000=₦260,000\text{₦}790,000 - \text{₦}530,000 = \text{₦}260,000.

Step-by-Step Solution

1
Determine total credits to the Joint Venture Account.
Total Credits = Cash Sales + Unsold Inventory Taken Over = ₦750,000+₦40,000=₦790,000\text{₦}750,000 + \text{₦}40,000 = \text{₦}790,000.
In separate set of books accounting, sales revenues and inventory taken over by co-venturers represent venture income and are credited to the Joint Venture Account.
2
Determine total debits to the Joint Venture Account.
Total Debits = Materials Purchased + Direct Expenses + Venturer Personal Expenses = ₦350,000+₦150,000+₦30,000=₦530,000\text{₦}350,000 + \text{₦}150,000 + \text{₦}30,000 = \text{₦}530,000.
All expenditure incurred for the venture, whether disbursed from the Joint Bank Account or directly by a venturer, must be debited to the Joint Venture Account.
3
Compute net profit by taking the difference between total credits and total debits.
Net Profit = ₦790,000−₦530,000=₦260,000\text{₦}790,000 - \text{₦}530,000 = \text{₦}260,000.
An excess of total revenue/credit entries over total cost/debit entries indicates the profit earned by the joint venture.

Key Concept

Calculation of Net Venture Profit in Separate Set of Books Method
Estimated Time:1m 30s
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Joint Venture Accounting: Separate Set of Books Method

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