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Joint Venture Worked Example Question 4 - Separate Books of Accounts

1) Roberto and Sasha each contributed $1,000 of capital to start a joint venture. 2) They kept separate accounting records for their individual capital contributions and shares of profit. 3) Increasing the markup on equipment could increase profits but may also reduce sales if the higher prices lead customers to purchase less or from competitors. A proper analysis of the market is needed before setting the price.

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Roshan Ramkhalawon
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262 views4 pages

Joint Venture Worked Example Question 4 - Separate Books of Accounts

1) Roberto and Sasha each contributed $1,000 of capital to start a joint venture. 2) They kept separate accounting records for their individual capital contributions and shares of profit. 3) Increasing the markup on equipment could increase profits but may also reduce sales if the higher prices lead customers to purchase less or from competitors. A proper analysis of the market is needed before setting the price.

Uploaded by

Roshan Ramkhalawon
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Joint Venture Worked Example Situation 1 – Separate Books of Account

Question 4

R–½;S–½

Capital
introduced

Roberto and Sasha each contributed $1 000 to start the joint venture. This
represented the capital of the joint venture.
Because they are capital transfers and do not affect the profit of the joint
venture.

Joint Venture Account


Sasha: Rent 200 Joint Venture Bank: Sales 1 800
Roberto: Fixtures 120 Roberto: Sales (2500 – 1800) 700
Joint Venture bank: Inventory 1700 Joint Venture Bank: Fixtures 50
Share of profit
- Roberto (1/2 X 530) 265
- Sasha (1/2 X 530) 265
2 550 2 550
Roberto Account
Joint Venture: Sales 700 Joint Venture Bank: Capital 1 000
Joint Venture: Fixtures 120
Joint Venture Bank ? 685 Joint Venture: Share of profit 265
1 385 1 385

Sasha Account
Joint Venture Bank: Capital 1 000
Joint Venture: Rent 200
Joint Venture Bank ? 1 465 Joint Venture: Share of profit 265
1 465 1 465

Cost of equipment purchased = $1 700


New profit on equipment = 75% X 1 700 = $1 275

Profit on equipment before = 2 500 – 1 700 = $800


Increase in profit on equipment = 1 275 – 800 = $475

Increase in share of profit for Sasha = ½ X 475 = $237.50

Increasing the markup will increase the selling price of the equipment, which
might lead to a fall in sales. The unsold units would have to be sold at a
discounted price.
The experience of having already worked in a joint venture may allow them to
sell the product at a higher price.

Annual event might encourage more competition and the competitors might
sell at a lower price. The joint venture might lose customers.

Roberto should do a proper analysis of the market before suggesting such a


high markup.

If the joint venture is successful again, it might lead to more business


opportunity between the two or they might end up becoming partners.

It is advisable for Sasha to repeat the joint venture.

Business selling sports equipment will want to maximise profit for the owner
by selling goods at a markup, that is, a price higher than cost. Whereas a club
will want to maximise welfare of the members by selling at cost or at a discount
price.

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