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Difficulty: HardJoint Venture Accounting: Separate Set of Books Method

Ade and Baba entered into a joint venture sharing profits and losses in the ratio of 3:2. A separate set of books was maintained for the venture. They opened a Joint Bank Account, contributing ₦500,000 and ₦300,000 respectively.

The venture transactions were as follows:
- Purchases paid through Joint Bank: ₦600,000
- Freight and carriage paid through Joint Bank: ₦40,000
- Storage expenses paid through Joint Bank: ₦20,000
- Carriage paid directly by Ade from personal funds: ₦15,000
- Goods supplied by Baba from his personal stock: ₦80,000
- Sales proceeds deposited into Joint Bank: ₦1,000,000
- Unsold stock taken over by Baba: ₦35,000

Ade is entitled to a 5% commission on sales proceeds for managing the venture.

What is the final amount in Naira (₦) payable to Ade from the Joint Bank Account upon settlement?

Answer: 703000 ₦

Answer

The final amount payable to Ade from the Joint Bank Account upon settlement is ₦703,000.
Under the separate set of books method, the Joint Venture Account acts as a profit and loss account. The net profit of ₦230,000 is distributed according to the 3:2 ratio, giving Ade ₦138,000. Ade's personal account is credited with his capital contribution (₦500,000), personal expenses incurred (₦15,000), earned commission (₦50,000), and share of profit (₦138,000), yielding a total final settlement payable of ₦703,000 from the Joint Bank Account.

Step-by-Step Solution

1
Calculate Ade's management commission
₦50,000
Ade is entitled to 5% of total sales proceeds (5% of ₦1,000,000).
2
Determine total expenses and costs in the Joint Venture Account
₦805,000
Sum of all costs: ₦600,000 + ��40,000 + ₦20,000 + ₦15,000 + ₦80,000 + ₦50,000.
3
Determine total income and credits in the Joint Venture Account
₦1,035,000
Sum of sales revenue (₦1,000,000) and agreed value of unsold stock taken over by Baba (₦35,000).
4
Calculate net joint venture profit
₦230,000
Total credits (₦1,035,000) minus total debits (₦805,000).
5
Calculate Ade's share of profit
₦138,000
Profit sharing ratio is 3:2, so Ade receives 3/5 of ₦230,000.
6
Balance Ade's Personal Account to find final cash settlement
₦703,000
Credit Ade's account with capital contribution (₦500,000), expenses incurred (₦15,000), commission (₦50,000), and profit share (₦138,000).

Key Concept

Joint Venture Accounting: Separate Set of Books Method
Estimated Time:2m 30s
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Joint Venture Accounting: Separate Set of Books Method

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