Examkin

Question

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

Bisi and Femi entered into a joint venture to trade in timber, agreeing to share profits and losses in the ratio 3:23:2 respectively. Under the Memorandum Joint Venture method, Bisi supplied goods valued at N120,000\text{N}120,000 and paid transport expenses of N10,000\text{N}10,000. Femi paid storage expenses of N5,000\text{N}5,000 and sold all the timber for N180,000\text{N}180,000. Femi was entitled to a selling commission of 5%5\% on total sales. What amount is payable by Femi to Bisi on final settlement?

  1. N151,600\text{N}151,600Answer
  2. B
    N157,000\text{N}157,000
  3. C
    N144,400\text{N}144,400
  4. D
    N31,600\text{N}31,600

Answer

The amount payable by Femi to Bisi on final settlement is N151,600\text{N}151,600.
Under the Memorandum Joint Venture method, total joint venture profit is determined by deducting all venture costs, expenses, and commissions from total sales proceeds. Total sales of N180,000\text{N}180,000 less Bisi's goods (N120,000\text{N}120,000), Bisi's transport (N10,000\text{N}10,000), Femi's storage (N5,000\text{N}5,000), and Femi's commission (N9,000\text{N}9,000) leaves a net profit of N36,000\text{N}36,000. Bisi's 3/53/5 share of profit is N21,600\text{N}21,600. Adding Bisi's direct outlays of N130,000\text{N}130,000 gives N151,600\text{N}151,600 as the final cash settlement due from Femi.

Step-by-Step Solution

1
Calculate Femi's commission
Commission = 5%×N180,000=N9,0005\% \times \text{N}180,000 = \text{N}9,000
The selling venturer is entitled to commission as part of joint venture expenses.
2
Calculate the net profit of the Memorandum Joint Venture Account
Total Revenue = N180,000\text{N}180,000; Total Expenses = N120,000+N10,000+N5,000+N9,000=N144,000\text{N}120,000 + \text{N}10,000 + \text{N}5,000 + \text{N}9,000 = \text{N}144,000; Net Profit = N180,000−N144,000=N36,000\text{N}180,000 - \text{N}144,000 = \text{N}36,000
Net profit is the excess of total joint venture revenue over all venturers' combined costs and commissions.
3
Share the net profit according to the agreed ratio (3:23:2)
Bisi's share of profit = 35×N36,000=N21,600\frac{3}{5} \times \text{N}36,000 = \text{N}21,600
Bisi receives three-fifths of the total profit.
4
Determine the final settlement balance owed by Femi to Bisi
Settlement amount = Bisi's cost of goods (N120,000\text{N}120,000) + Bisi's transport (N10,000\text{N}10,000) + Bisi's share of profit (N21,600\text{N}21,600) = N151,600\text{N}151,600
Femi collected all sales proceeds and must reimburse Bisi's total outlays plus Bisi's share of profit.

Key Concept

Memorandum Joint Venture Account Profit Determination and Final Settlement Calculation
Rate this question

Topics

Joint Venture Accounting: No Separate Books (Memorandum Method)

More questions from this topic