Use Joint Venture Principles To Stand Out Among The Crowd

Use Joint Venture Principles To Stand Out Among The Crowd

Joint venture principles are defined in different ways according to the requirement of each venture. In a joint venture, two or more entities build a relationship to meet a specific purpose. Although there are joint ventures that are long-term in nature, many joint ventures may be formed only for a short period of time. A joint venture may be similar to a partnership except that it is formed for a specific reason. In recent days, many large organizations are entering into long-term joint ventures. The joint venture principles to be followed should be clearly defined in such cases and proper accounting procedures should be carried out. This will maintain transparency of all operations.

Different Modes Of Joint Venture Principles In Practice

There are two different accounting methods which can be used in accordance with the joint venture principles. In one method, a separate set of books is maintained for accounting purposes as in the case of a partnership. Under this method, there is no ambiguity as there is no specific accounting problem. All transactions are maintained according to the double entry system with income statements and balance sheets being prepared in the usual manner. In the next method, there are no separate set of accounting books. Since many joint ventures are of relatively short duration, separate books are not maintained. However records are maintained keeping in mind the joint venture principles to be maintained.

Division Of Responsibilities And Roles As Per Joint Venture Principles

In a joint venture agreement, responsibilities of each party may be divided according to areas in which each party is comfortable. For example, one person may be entrusted with the purchase of goods required for the joint venture. The responsibility of sales may rest with another party. Each person will have to maintain books according to the joint venture principles. These books will have to be produced by all the parties involved in the joint venture at specific predetermined times or when the joint venture relationship comes to an end.

In order to maintain accurate records of the joint venture, each party involved in the joint venture has to maintain a record of each transaction that he has carried out on behalf of the joint venture. At a specific predetermined time, each joint venturer has to prepare a summary of these transactions and present a consolidated accounting report to the other parties involved in the joint venture. Once each partner in the joint venture has presented the individual transaction log according to the joint venture principles, an amalgamated report is prepared on the basis of the individual reports. This is called the memorandum statement and any profit or loss as per this statement is divided among the joint venturers as per the initial agreement. According to the joint venture principles, any profit or loss needs to be recorded in the accounting books of each joint venturer along with the regular transactions.

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