Examkin

Question

Difficulty: MediumJoint Venture Accounting: Separate Set of Books Method

Tunde and Segun entered into a joint venture to trade in electrical appliances, maintaining a separate set of books. They opened a Joint Bank Account, contributing ��2,000,000��2,000,000 and ₦1,000,000₦1,000,000 respectively. Purchases amounting to ₦1,500,000₦1,500,000 and venture expenses of ₦250,000₦250,000 were paid directly from the Joint Bank Account. Tunde supplied goods from his personal business valued at ₦450,000₦450,000, while Segun paid ₦100,000₦100,000 for transport from his private funds. Total sales proceeds of ₦3,800,000₦3,800,000 were deposited into the Joint Bank Account. Profits and losses are shared between Tunde and Segun in the ratio 3:23:2. What is the final amount payable to Segun from the Joint Bank Account upon full settlement?

Answer: 1700000 ₦

Answer

The final amount payable to Segun from the Joint Bank Account upon full settlement is 1,700,000 Naira.
The total venture profit is ₦1,500,000 (₦3,800,000 sales less ₦2,300,000 total costs). Segun's 2/5 share of profit equals ₦600,000. Adding this profit share to his capital contribution (₦1,000,000) and personal expenses paid (₦100,000) yields a final settlement balance of ₦1,700,000 due to Segun.

Step-by-Step Solution

1
Determine the net profit of the joint venture by preparing the Joint Venture Account
Total debits = ₦2,300,000; Total credits (sales) = ₦3,800,000; Net Profit = ₦1,500,000
Net profit is the excess of total revenue credited to the venture over total costs debited.
2
Calculate Segun's agreed share of the net profit based on the profit-sharing ratio of 3:2
Segun's share = 2/5 * ₦1,500,000 = ₦600,000
The profit-sharing ratio assigns 3 parts out of 5 to Tunde and 2 parts out of 5 to Segun.
3
Credit Segun's Personal Account with his capital contribution, personal expenses incurred, and profit share
Segun's ledger balance = ₦1,000,000 + ₦100,000 + ₦600,000 = ₦1,700,000
Under the separate set of books method, each co-venturer is credited in their personal account for capital contributed, personal expenses incurred on behalf of the venture, and their profit share to determine final settlement.

Key Concept

Calculation of final co-venturer cash settlement using the Separate Set of Books method in Joint Venture accounting
Rate this question

Topics

Joint Venture Accounting: Separate Set of Books Method

More questions from this topic