Joint Venture

Partnership

Limited to a specific venture.

Not limited to a specific venture.

Partners are called co-ventures.

Persons carrying on partnership business are called partners.

No specific Governing Act for joint venture.

Partnership firms are governed by the Partnership Act.

No common firm’s name in joint venture.

Carried on under firm’s name.

Joint venture is a terminable profit seeking venture.

Partnerships are continuing profit seeking enterprise.

Profit or loss is ascertained after the end of the specific venture.

Profit or loss is ascertained on an annual basis.

The doctrine of implied authority is not applicable to co-ventures

The doctrine of implied authority is applicable to partners.

        Parties:

• In consignment, the parties are the consignor and consignee whilst in a joint venture the parties are called co-ventures

          Relationship:

• In consignment, it is principal and agent relationship whilst in a joint venture it is like a partnership

         Powers:

• In consignment, the consignee is the agent who follows instruction from the consignor who is the principal whilst in a joint venture, the co-ventures enjoy full powers as to the sale and purchase of goods and collection of dues, etc

       Governing Act:

• In consignment, as it is a principal and agent relationship hence governed by the Law of Agency whilst in a joint venture it is governed by the Partnership Act

       Sharing Profits:

• In consignment, the consignee is given commission whilst in a joint venture the parties are entitled to profit sharing

        Scope/Activities:

• In consignment, concerned only with the sale of movable whilst, in a joint venture it can undertake all kinds of business activities like construction of infrastructure, film-making and many others and which includes the purchase and sale of goods.

      Capital Contribution:

• In consignment, the consignee do not contribute capital whilst in a joint venture, all the co-ventures contribute funds or capital to the joint venture business.

       Number of Person:

• In consignment, normally two parties namely consignor and consignee whilst in a joint venture it is at least two and can have more parties.

Normal Loss In Consignment

• unavoidable, inherent and to natural causes like evaporation, leakage, drying, etc

AccountingTreatment:

• consider as part of cost of goods hence when computing the value of stock on consignment, the cost is inflated to cover the normal loss.

• This is done by appropriating the cost on the basis of actual quantity available for sale.

• Value of stock on consignment:

Cost of goods consigned X Unsold Quantity

Actual quantity available for sale

Abnormal Loss In Consignment

• Avoidable loss as it does not arise due to the nature of goods

• Caused by theft, accident, fire, pilferage, abnormal breakages, carelessness, etc

Accounting Treatment:

• Computed the same way as the valuation of stock on consignment after taking into consideration the proper expenses incurred on it.

The value of loss is treated as follows:

• Debit: Abnormal Loss

• Credit: Consignment Account

If the stock is insured, the accounting entries of the actual insurance amount claimed is as follows:

• Debit: Insurance Company

• Credit: Abnormal loss a/c

Any amount realized on account of damaged goods should also be credited to abnormal loss account.

The balance in abnormal loss account is debited to Income Statement.

Upon receipts from the insurance company, cash account is debited and insurance company being credited.

Overriding Commission

• Commission given to the consignee in addition to the normal commission

• Purpose of such incentive is to motivate the consignee to create market for new products.

• Sometimes, this additional commission is allowed to consignee where certain sales limits have been exceeded.

Del Credere Commission

• Commission given to the consignee in addition to the normal commission

• Purpose is for the consignee to bear/absorb the loss on account of bad debts if any, arising out of credit sales of consignment goods

• Computed based on total sales unless it is agreed on credit sales.

• Once the consignee is given del credere commission, he become liable to all losses on account of non-recovery of debts