Ebuka and Fatima entered into a joint venture to trade in solar energy equipment, maintain… — JAMB UTME

Ebuka and Fatima entered into a joint venture to trade in solar energy equipment, maintaining a separate set of books. Ebuka and Fatima paid $₦2,500,000$ and $₦1,500,000$ respectively into a Joint Bank Account. Goods purchased using funds from the Joint Bank Account amounted to $₦3,000,000$ . Ebuka paid carriage expenses of $₦200,000$ from his personal funds, while selling expenses of $₦150,000$ were settled from the Joint Bank Account. All goods were sold for $₦4,800,000$ and the proceeds were deposited into the Joint Bank Account. If profits and losses are shared between Ebuka and Fatima in the ratio $3:2$ respectively, what is the final cash amount due to Ebuka upon closing the venture?

Answer: 3570000 ₦

Answer

The final cash settlement payable to Ebuka upon closing the joint venture is ₦3,570,000.

Total expenses credited across Joint Bank and Ebuka's personal account equal ₦3,350,000. Deducting this from sales revenue of ₦4,800,000 leaves a joint venture profit of ₦1,450,000. Ebuka's 3/5 share is ₦870,000. Crediting Ebuka's account with his initial deposit (₦2,500,000), carriage expense paid directly (₦200,000), and profit share (₦870,000) yields a final cash payout of ₦3,570,000.

Step-by-Step Solution

Calculate total expenses debited to the Joint Venture Account

Total expenses = ₦3,000,000 + ₦200,000 + ₦150,000 = ₦3,350,000

All purchases, carriage, and selling expenses incurred for the venture must be debited to the Joint Venture Account to determine net profit or loss.

Calculate total net profit generated by the Joint Venture

Net Profit = Total Sales (₦4,800,000) - Total Expenses (₦3,350,000) = ₦1,450,000

Net profit is the excess of total joint venture revenue over total joint venture expenditure.

Calculate Ebuka's share of the net profit

Ebuka's Profit Share = (3 / 5) × ₦1,450,000 = ₦870,000

Profits are distributed in the agreed ratio of 3:2 between Ebuka and Fatima.

Determine the final balance in Ebuka's Personal Account

Ebuka's Final Settlement = Capital Contribution (₦2,500,000) + Personal Expenses Paid (₦200,000) + Profit Share (₦870,000) = ₦3,570,000

When a separate set of books is kept, a venturer's personal account is credited with initial capital contributed, expenses paid out of personal funds, and share of profit. The final credit balance is paid from the Joint Bank Account.

Key Concept

Final settlement calculation in a co-venturer's account under the separate set of books method

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