Two traders enter into an agreement to jointly acquire and sell a specific consignment of imported machinery for a single transaction, agreeing to share the resulting net profit or loss equally. Which of the following features fundamentally distinguishes this business arrangement from a standard commercial partnership?
- AThe business arrangement requires the legal registration of a separate corporate entity with a distinct firm name.
- The arrangement is temporary and terminates upon completion of the specific venture, lacking the accounting concept of going concern.Answer
- CThe participants act strictly under a principal and agent relationship where one receives commission rather than sharing profits.
- DThe financial accounts of the venture are restricted solely to routine recording without determining net profit or loss.
Answer
The arrangement is temporary and terminates upon completion of the specific venture, lacking the accounting concept of going concern.
A joint venture is a temporary partnership formed for a specific duration or task. It dissolves automatically once the task is completed, which means it does not operate under the traditional going concern assumption that applies to a standard partnership or company.
Step-by-Step Solution
Key Concept
Temporary Nature and Absence of Going Concern in Joint Ventures