Two merchants enter into a temporary agreement to pool funds, purchase a bulk shipment of seasonal produce, sell the goods, and share the net profit equally, with the agreement terminating automatically upon completion of the transaction. Which of the following fundamental accounting features distinguishes this business arrangement from a traditional partnership?
- The non-applicability of the going concern concept due to its temporary nature for a specific venture.Answer
- BThe legal requirement to register a separate permanent firm name with statutory authorities before trading.
- CThe restriction of participant roles strictly to a principal and agent relationship.
- DThe requirement that accounting records must be kept by an external independent auditor.
Answer
The non-applicability of the going concern concept due to its temporary nature for a specific venture
A joint venture is a temporary business arrangement entered into by two or more persons for a specific purpose or transaction. Because it dissolves automatically once the project is completed, the going concern concept—which assumes a business will operate indefinitely—does not apply. In contrast, a standard partnership is assumed to continue operating indefinitely.
Step-by-Step Solution
Key Concept
Nature and Features of Joint Venture Accounts