Memorandum Joint Venture: Features and Applications

We all know that a joint venture is a contract between two or more parties to carry on a specific business for a set period of time. It is jointly controlled by all joint venture partners, and profits and losses are divided according to the agreed ratio. It also comes to an end when the time limit expires or the specific goal is achieved. Co-venturers are the partners involved in a Joint Venture. In this article, you will understand memorandum joint ventures, their importance, and samples. Let's look at how to make a memorandum Joint Venture A/c. 

A memorandum joint venture account is a type of venture to determine the profit or loss of a joint venture. The co-ventures are paying their expenses which are debited from their Account and profit made by the co-ventures is credited in the respective co-ventures name. The memorandum of joint venture account is an agreement when two or more parties who are called co-ventures join together to execute a business for a limited period of time. A Joint venture memorandum account is managed jointly by all the parties to the joint venture. The profits and losses earned in this agreement are shared as per the specified ratio.

How to Maintain Memorandum Joint Venture

Step 1 - In this case, the Co-venturers can maintain the records separately, and there are different books of accounts for the joint venture. This can be done in the following two ways:

1. Put the records of all the transactions

2. Put the records of own Co-ventures transactions. 

So, the co-venturers keep the record of their transactions only, so we make the Memorandum Joint Venture Account. 

In this case, each co-venturer of the joint Account records only his transactions.

Joint Venture Memorandum Account

Each co-venture opens a ‘Joint Venture’ with their AccountAccount. Each of them then debits all the income, losses, profits, and expenses from the joint venture to this AccountAccount. However, we cannot estimate the profit or loss from the venture from this AccountAccount. We prepare ‘Memorandum Joint Venture A/c’ for estimating the profit or loss of the Joint venture. 

Each co-venturer sends a regular statement of their transactions as per the joint venture to the other co-venturers involved in the joint venture.

This final statement helps in the preparation of the Memorandum Joint Venture A/c. We call it a memorandum Account because this Account is not a part of the double-entry system. 

Importance of Memorandum Account

The important features of the Memorandum joint venture account are:

• Each co-venturer has only one personal account named Joint Venture account in his book (Name of other co-venturer). In his books of accounts, the other co-venturer will follow the same procedure.

• Each co-venturer will open only one personal account, irrespective of the fact that the other co-venturers are present. In the case of joint ventures of 4 people, A, B, C, and D, A will open only one personal account in his books, named Joint venture with B, C, and D.

• Only the transactions that are done by him, will be recorded in his book; transactions performed by other co-venturers will be ignored.

• A combination account named "memorandum joint venture account" will be opened in addition to the above personal account.

• A memorandum account is just a combination of personal accounts that each co-venturer has opened. The personal account's debit side will be transferred to the memorandum account, and the personal account's credit side will be transferred to the credit side of the memorandum account.

• Transactions between co-venturers, such as cash received or paid from one co-venturer to another, will be ignored when a memorandum account is prepared.

• The profit or loss of the particular business will be represented by the balance of the memorandum joint venture account. Furthermore, the profit or loss will be transferred to each co venturer's profit-sharing ratio.

Sample Memorandum of Understanding for Joint Venture

Suppose there are two Co-venturer, A and B. 

1. A Co-venturer will open his account in his book, and it will be titled: Joint Venture with A Account, which is a personal account. It does not show the profit or loss of a Joint Venture. A Co-venturer debits the Account with his expense and credits the Account when he receives income. 

2. In this case, only A records only his transactions. No account can be incurred etc. by the other co-venturer B.

Journal entries made in the books of one party say, Mr. A and the other Co-Venturer Mr. B.

The above is a personal account. It does not display any profit or loss of the Joint Venture. To get the profit or loss of Joint Venture, we have to prepare a Memorandum Joint Venture Account. To prepare a Memorandum Joint Venture Account, one co-venturer A will have to send another co-venturer B a copy of the Account kept by him.

Based on the copy of the Account and his Account, Memorandum Joint Venture is prepared. In short, the Memorandum Joint Venture Account is just a collection of Joint Venture Accounts prepared by all the co-venturers.