Account lesson note for SS3 First Term is now available for free. The State and Federal Ministry of Education has recommended unified lesson notes for all secondary schools in Nigeria, in other words, all private secondary schools in Nigeria must operate with the same lesson notes based on the scheme of work for Account.

Account lesson note for SS3  first Term has been provided in detail here on schoolgist.ng

For prospective school owners, teachers, and assistant teachers, Account lesson note is defined as a guideline that defines the contents and structure of Account as a subject offered at SS level. The lesson note for Account for SS stage maps out in clear terms, how the topics and subtopics for a particular subject, group works and practical, discussions and assessment strategies, tests, and homework ought to be structured in order to fit in perfectly, the approved academic activities for the session.

To further emphasize the importance of this document, the curriculum for Account spells out the complete guide on all academic subjects in theory and practical. It is used to ensure that the learning purposes, aims, and objectives of the subject meant for that class are successfully achieved.

Account Lesson note for SS3 carries the same aims and objectives but might be portrayed differently based on how it is written or based on how you structure your lesson note. Check how to write lesson notes as this would help make yours unique.

The SS3 Account lesson note provided here is in line with the current scheme of work hence, would go a long way in not just helping the teachers in carefully breaking down the subject, topics, and subtopics but also, devising more practical ways of achieving the aim and objective of the subject.

The sudden increase in the search for SS3 Account lesson note for First Term is expected because every term, tutors are in need of a robust lesson note that carries all topics in the curriculum as this would go a long way in preparing students for the West African Secondary Examination.

This post is quite a lengthy one as it provides in full detail, the government-approved lesson note for all topics and sub-topics in Account as a subject offered in SS3.

Please note that Account lesson note for SS3 provided here for First Term is approved by the Ministry of Education based on the scheme of work.

I made it free for tutors, parents, guardians, and students who want to read ahead of what is being taught in class.

SS3 Account Lesson Note (First Term) 2024

FIRST TERM SCHEME OF WORK FOR SS3

FINANCIAL ACCOUNTING

WEEK TWO

TOPIC: PREPARATION OF COMPANY INCOME STATEMENT

CONTENTS

1. Profit and loss appropriation account and its uses
2. Treatment of goodwill and preliminary expenses
3. Amount transferred to reserve for bonuses and dividends
4. Preparation of company’s balance sheet
5. Analysis or interpretation of the final account of company using simple rations

DDEFINITION OT TERMS

The following terms are defined as they have been used in this book:

PROFIT AND LOSS APPROPRIATION ACCOUNT: this is an account where the profit after tax is being distributed. The directors will approve the distribution in form of dividend, transfer to reserves etc. it is prepared after the profit and loss account.

DIVIDENDS: this is an amount paid to shareholders of a company from the profit after tax as a reward for investing in the company. Dividend can be paid as an interim dividend or trial dividend.

Interim dividend: is the amount that the company’s board of directors approved for payment before the accounting year ended, that is during the financial year. It is based on certain percentage as approved. NOTE that interim dividend is paid to only the ordinary shareholders.

Final dividend: is the dividend paid at the end of the financial year as proposed by the directors during the annual general meeting.

RESERVE: this is an amount set aside from the profit of an organisation for either a general or a specific purpose. It is called specific purpose reserve when it is for capital reserve, while it is called general purpose reserve if it is just kept to reduce the dividend declaring power.

PRELIMINARY EXPENSES

These are expenses incurred on the formation of company. All expenses incurred prior to commencement of company operation are termed preliminary expenses.

DISTRIBUTABLE PROFIT

The companies and allied matters Act 1990 defines the amount of profit that may be legally distributed by a company. Certain reserves are not distributable under the provisions of the companies and Allied matters Act 1990. The more common reserve so classified are as follows:

1. The share premium account
2. The capital redemption reserve
3. Any reserves which the company is prohibited from distributing. Examples of such reserve are statutory reserves (in case of banks and other deposit houses). Reserves for small scale industries appropriated from profit and revaluation surplus. Distributable reserves are the credit balance in the profit and loss account or a general reserve account.
4. Unappropriated profit is the amount of profit carried forward as a credit balance on the profit and loss account. it is shown as a reserve in the balance sheet.

Format of profit and loss account

XYZ Company Ltd

Trading, profit and loss account for the year ended 19×4

Sales xx

Less: cost of sales xx

Gross profit xx

Less: Admin expenses xx

Director’s emolument xx

Salaries xx

Rents xx

Rates xx

Insurance xx

Electricity   xx

Repairs and maintenances xx

Telephone xx

Postages and stationery xx

Legal and professional charges xx

Depreciation:

Freehold land and building xx

Furniture and fittings xx xx

SELLING AND DISTRIBUTION EXPENSES

Carriage outwards xx

Motor expenses xx

Depreciation of motor expenses xx xx

FINANCIAL EXPENSES

Interest on debentures xx

Bank interest xx

Discount allowed xx

Bad debts xx

Provision for doubtful debt xx xx

Profit before taxation xxx

FORMAT OF APPROPRIATION ACCOUNT AND BALANCE SHEET

XYZ AND COMPANY LTD

PROFIT AND LOSS APPROPRIATION ACCOUNT

XYZ and Company Ltd

Balance sheet as at 31^st December, 19×4

FIXED ASSETS   COST ACC.DEP NBV

Freehold land and buildings x x x

Leasehold land and buildings x x x

Furniture and fittings x x x

Motor vehicle x x x

xx xx xx

CURRENT ASSETS

Stock at cost (closing) x

Debtors x

Cash at bank x

Cash in hand x

xx

LESS CURRENT LIABILITIES

Creditors x

Taxation x

Proposed dividends x (xx)

Net current assets xx

Net assets before long term liability xx

LESS LONG TERM LIABILITY

x% Debentures (xx)

Net assets xxx

Financed by:

Share capital authorised issued full

x% preference share x x

Ordinary share #x each x x

RESERVE

Share premium account x

General reserve x

Profit and loss account x x

Net asset / shareholder fund xxx

Example 1: The following trial balance is extracted from the books of songs Ltd as at 31^st December 2000.

7% preferences share capital 30,000

Ordinary share capital 100,000

Goodwill 20,050

Preliminary expenses 3,210

6% debenture 24,000

Land and building 45,000

Equipment 35,000

Bank 28,560

Debtors 21,000

Creditors 23,000

Motor vehicle 53,000

Provision for depreciation

Equipment 3,050

Motor vehicle 43,000

Stock 1/1/2000 10,000

Sales 95,250

Carriage inwards 440

Purchases 65,340

Carriage outwards 160

Salaries and wages 4,370

Auditors remuneration 2,050

Directors remuneration 4,250

Motor expenses 780

Rates 1,520

General expenses 480

Debenture interest 740

Cash in hand 24,000

General reserve 13,200

Share premium 5000

Interim ordinary dividend 4,050

Profit and loss 28,200

326,000 326,000

Additional information

1. Stock at 31/12/2000 was #30,000
2. Provision for depreciation

motor vehicle 4,500

equipment 2,300

iii. Transfer #4,100 to general reserve

1. Salary owing #250
2. Accrued debenture interest #700
3. Write off goodwill #1,500;preliminary expenses #3,210

vii. Provide for preference dividend #2,100 and final ordinary dividend of 5%

viii. Corporation tax #2,500

1. Authorized share capital is #50,000 in preference shares and #300,000 in ordinary shares

You are required to prepare the trial accounts of Song Ltd for the year ended 31^st December, 2000.

SOLUTION – HORIZONTAL FORMAT

SONGS LTD

TRADING, PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31^ST DECEMBER, 2000

Sales 95,250

Opening stock 10,000

Add: purchases 65,340

Add carriage inwds       440 65,780

Good available for sales 75,780

Less: closing stock 30,000

Cost of goods sold 45,780

Gross profit 49,470

95,250 95,250

Gross profit 49,470

Expenses

Carriage outwards 160

Salaries & wages (wk1) 4,620

Auditor Remuneration 2,050

Directors remuneration 4,250

Motor expenses 780

Rates 1,520

General expenses 480

Debenture interest (wk2) 1,440

Depreciation: motor vehicle 4,500

Equipment 2,300

Net profit 27,370

49,470 49,470

WORKINGS

1. Salaries and wages 4,370

Owing    250

Profit and loss 4,620

2. Debenture interest 740

Owing 700

Profit and loss 1,400

3. Goodwill 20,050

Written off 1,500

18,530

4. Preliminary Expenses #3,210 – 3,210

=

5. General reserve #13,200

New #4,100

17,300

6. Ordinary share dividend 5% x 100,000

= #5,000

7. Depreciation: Motor vehicle = #4,300 + 4,500

= #8,800

Equipment = #3,050 + 2,300

= #5,350

APPROPRIATION ACCOUNT

General Reserve 4,150

Goodwill written off 1,500 Net profit b/d 27,370

Preliminary expenses written off 3,210 Profit b/f 28,200

Ordinary dividend:

Interim 4.050

Final (wk6) 5,000

Preference dividend

Final 2,100

Corporation tax 2,500

Retained profit 33,110

55,570 55,570

SONG LTD

Balance sheet as at 31^st December, 2000

Authorized share capital       FIXED ASSETS #          # #

Ordinary share capital 300,000     Land & building 45,000 – 45,000

Preference share capital 50,000       Motor vehicle 55,000       8,800 46,200

350,000     Equipment 35,000       5,350 29,650

Issued share capital 135,000   14,150        120,850

Ordinary share capital 100,000     Current Assets

Preference share capital 30,000        Stock 30,000

130,000     Debtors 21,000

Reserve        Bank 28,000

General Reserve (wk) 17,300        Cash 24,000           103,500

Share premium 5,000        Goodwill (wk3)            18,550

Retained profit 33,110 55,410

Current liabilities

Creditors 23,000

Salary owing 250

Debenture interest 700

Proposed dividend

Ordinary share (wk) 5000

Preference share 2100

Corporate tax 2500

242,960    242960

VERTICAL METHOD

SONG LTD

Trading, profit and loss account for the year ended 31^st December, 2000

#

Sales 95,250

Less cost of sales

Opening stock 10,000

Add: purchases            65,340

Carriage inwards 440 65,780

75,780

Less: closing stock 30,000 45,780

Gross profit 49,470

Less: expenses

Carriage outwards 160

Salary and wages (wk1)              4620

Auditor remuneration              2050

Director remuneration              4250

Motor expenses 780

Rates 1520

General expenses 480

Debenture interest (wk2) 1440

Depreciation:

Motor vehicle 4500

Equipment 2300 22100

Net profit 27370

Add: retained profit 28200

55,570

Less: Appropriation

General reserves 4100

Goodwill written off 1500

Preliminary expenses written off 3210

Corporation tax 2500

Ordinary dividend

Interim 4050

Final 5000

Preference dividend: final 2100 22,460

Profit carried forward 33,110

SONG LTD

Balance sheet as at 31^st December, 2000

FIXED ASSETS # # #

Cost Dep. NBV

Land and building 45000 – 45000

Motor vehicle 55000 8800 46200

Equipment 35000 5350 29650

135000             14150                  120850

Goodwill 18550

CURRENT ASSETS

Stock 30000

Debtors               21000

Bank 28560

Cash 24000

103,560

Less: CURRENT LIABILITIES

Creditors 23000

Salary owing 250

Debenture interest 700

Proposed dividend

Ordinary share               5000

Preference share 2100

Corporation tax                2500 33550 70,010

209,410

Financed by:

Share capital Authorized Issued

Ordinary share              300,000              100,000

7% preference share 50,000 30,000

350,000 130,000

Reserves:

General reserves 17,300

Share premium                 5000

Retained profit               33,110 185,410

Loan capital: 6% debenture 24,000

209,410

ASSIGNMENT

Page 439 question 4

WEEK FIVE

TOPIC: CAPITAL MARKET

DEFINITION

This is also called stock exchange market. It is a highly organised market where investors can buy and sell both private and public securities. This is a market where those who are interested in purchase of securities are brought into contact with the sellers. It serves as a source of raising capital as well as a forum for financial investment.

FEATURES OF CAPITAL MARKET

The feature of capital market are as follows:

• It is a market whereby finances can be raised on long term basis
• The products of this market are shares, debentures, stocks, bond, gilt – edge securities and so on
• It is a market whereby securities can be converted to cash and be made to change hands
• The returns on the securities in this market are dividends and interest
• The regularity authority in this market is the Security Exchange Commission (SEC)
• The dealers in the market are individual persons, stock brokers, government, companies, jobbers, speculation, investment companies, unit trust and so on.
• The market has networking through the branches in geographical locations and in commercial locations in Nigeria.

LISTING ON THE STOCK EXCHANGE MARKET

Listing is the admission of a company’s capital or instrument on the trading floor of the stock exchange market. Before the admission, the company must have complied with the listing requirements as embodied in the stock exchange green book. A company can be listed on the First Tier Securities market or Second tier security market.

Requirement for admission into SSM

Before a company can so admitted into SSM it has to fulfil the following requirements

1. The company must be incorporated as a public limited liability company  under the companies Act 1968.
2. The shareholders must not be less than 100
3. The company must sign a general undertaking with the stock exchange market.
4. The company must make available at least 10% of its equity share to the investing public.
5. The financial statement of the company for three years must be submitted to the stock exchange.
6. Any investor or shareholder will not be allowed to either directly or indirectly acquire more than 75% of the issued capital.

Operating Regulations of SSM

1. Method of Admission: the following are the methods of admission into the SSM
2. Offer for Sale: This is an office to the public to sell part of the equity of existing shareholders of a company to investors.
3. Offer by introduction: A company can so allowed entry offer it has sold 10% of its equity to the public.
4. Offer by placement: Here, stockbrokers undertake to look for buyers for at least 25% of the company’s share.
5. Offer for subscription: offer for subscription is an offer to sell new shares of a company to interested investors.

FUNTIONS OF SECURITY AND EXCHANGE COMMISSION

• Valuation of shares
• Registration of securities
• Registration of market operations
• Approval of shares allotment
• Enforcement of sandoom against erring operators
• Approval and regulations on merger and acquisition
• Acting as regulatory apex organization of Nigeria capital market.

FUNCTIONS OF NIGERIA STOCK EXCHANGE

The stock exchange performs the following functions:

1. Facilitate the purchase and sales of securities
2. Provision of corporate information
3. Valuation of price of securities
4. Provides information about daily transaction
5. Provision of rules and regulations
6. Provides professional advice
7. Ensuring the liquidity of securities
8. Help the government to raise funds
9. Transfer of securities
10. Enable company to raise fund
11. Increase in the volume of security
12. Provides market for investment
13. Stability of capital

MEMBERS OF THE STOCK EXCHANGE MARKET

1. Stock brokers
2. Jobbers
3. Issuing houses
4. Registrars
5. Receiving banks
6. Authorized clerks
7. Unauthorized clerks

ASSIGNMENT

Differentiate between a jobber and a broker

State the function of the stock exchange market

WEEK EIGHT

TOPIC: HIRE PURCHASE ACCOUNT

INTRODUCTION

Hire purchase is a method of extending credit to a buyer. Particularly for some capital goods. Purchase can be defined as a system under which capital goods are acquired with payments through instalments. This method of credit sales allows the buyer to take up goods and even though he has not finished paying it.

TYPES OF GOODS ON HIRE PURCHASE

Basically, there are two types of goods that can be treated under the hire purchase system. These are large items and small items

For the purpose of convenience, it is usual to divide hire purchase into large and small items. Large items are usually assets in the hands of the buyer while small items are generally those sold to general public e.g. domestic appliances. The accounting treatments for these types of goods are treated as follows:

1. Treatment in the books of the buyer of large items
2. Treatment in the books of the seller of large items
3. Treatment in the books of the buyer of small items
4. Treatment in the books of the seller of small items

OPERATION OF THE HIRE PURCHASE SYSTEM

1. Under the hire purchase system, goods are delivered to the hirer (the buyer) and he agrees to make payments  as follows:
2. First through initial deposit payment
3. Later, balance of the hire purchase price is paid periodically by instalments over a fixed and given period of time
4. Hire purchase price consists of cost price, profit and hire purchase interest
5. The goods under the hire purchase agreement cannot be transferred or sold by the hirer (buyer) until the time instalment payment is made
6. In case where the buyer defaults in the instalment payments, the seller has the right to repossess the good
7. Goods on hire purchase transaction can only be possessed by the buyer to claim the ownership until the full price of the goods have been paid
8. Hire purchase transactions and agreement are guided by the terms of such agreement and the hire purchase act.

ACCOUNTING RECORDS FOR LARGE ITEMS

In the books of the buyer, the first step is to breakdown the total hire purchase price into the following categories

Cash price xxx

Hire purchase interest xxx

Hire purchase price xxx

The accounts to be opened are as follows:

• Asset account
• Hire vendor (seller) account

PROCEDURES

ASSETS A/C xx

Hire purchase interest suspense a/c xx

Hire vendor a/c xx

Being the recording of the cash price, hire

purchase interest into the parties involved accounts

Example 1

Kekere Ltd acquired two motor cars on hire purchase on January 2001. The contract price is #144,000 and the cost price of the cars is #120,000.

1. Calculate the hire purchase interest
2. Record the above transactions in the books of Kekere Ltd. (buyer’s books)

SOLUTION #

1. Hire purchase interest 144,000

Less cost of the cars 120,000

Hire purchase interest 24,000

1. Accounting records / treatment

Motor car a/c

Hire purchase 120,000

Hire purchase interest suspense

Motor car 120,000

Hire purchase int. 24,000

Example 2

Kaki Ltd purchased big tractor from Lagoon motor dealers Ltd. The agreement terms for the transaction are as follows:

Cost price 600,000

Hire purchase price 840,000

Deposition payment 200,000

Instalment period 4 years

You are required to record the following in the books of Kaki Ltd for four years. (assuming both the interest and instalmental payments are made equally over four years

SOLUTION

Hire purchase price 840,000

Less cost price 600,000

Hire purchase interest 240,000

Hire purchase price 840,000

Less deposit 200,000

Balance to be paid over four years 640,000

Instalmental payments 640,000 ÷ 4

= 160,000

Given the fact that the deposit payment is made on the cost price only

Basis of the instalmental payment

Cost price = (#60,000 – #200,000) ÷ 4

= #100,000 per year

Hire purchase interest = #240,000 ÷ 4 = #60,000 per year

(Assets) Tractors A/c

Hire vendor A/c 600,000

Hire Vendor A/c

Bank 200,000 Asset 600,000

Bank 160,000 H.P int. suspense 240,000

Bal. c/f 480,000

840,000 840,000

Bank 160,000 Bal. b/f (yr2) 480,000

Bal. c/f 320,000

480,000 480,000

Bank 160,000

Bal. c/f 160,000 Bal b/f (yr3) 320,000

320,000 320,000

Bank 160,000 bal. b/f (yr4) 160,000

Hire purchases interest suspense a/c

Hire vendor a/c 240,000 P&L (yr1) 60,000

Bal. c/d 180,000

240,000 240,000

Bal. c/d 180,000 P&L (yr2) 60,000

Bal. c/f 120,000

180,000 180,000

Bal. b/f 120,000 P&L (yr 3) 60,000

Bal. c/f 60,000

120,000 120,000

P&L (yr4) 60,000

ASSIGNMENT:  Page 582 question 1x

WEEK NINE

TOPIC: CONSIGNMENT ACCOUNT

MEANING

Consignment of goods: This is concerned with the sending of goods by the consignor to the consignee who agrees to sell them on behalf of the owner. Recording of such transactions is called consignment accounts.

CHARACTERISTICS OF CONSIGNMENT ACCOUNT

The main features of consignment account are as follow:

• Goods that are being sold on consignment are described as goods on consignment
• The arrangement involves appointment of an agent whose responsibility is to sell the principal goods consigned to him.
• The parties involved in this arrangement are the agent (consignee) and the principal (consignor)
• The appointed agent has to take the responsibility of the goods until they are sold.
• The agent (consignee) will receive a commission from the principal (consignor) for his work.
• If the agent could indemnify the consignor from any indebtedness arising from the sales made by the consignee, he will be paid a special commission called Del-credere commission
• All the parties involved are expected to keep independent accounting records retailing to the consignment of goods
• Any goods held by the consignee is described and treated as stock of goods belonging to the consignor.

CONSIGNMENT ACCOUNT TERMINOLOGIES

1. Pro – forma Invoice: It means “for form’s sake” invoice. This is a document of detailed information issued by the consignor to the consignee relating to the consignment.
2. Commission: This is a form of reward or remuneration for doing a job on behalf of a principal. It is based on a flat rate percentage of the gross sake made
3. Del – credere commission: This is a special commission given to the consignee for accepting the responsibility for any bad debts arising from sales made on credit.
4. Consignor: That is the trader or seller or principal who sends goods to the agent for sale.
5. Consignee: This is the agent who acts on behalf of the principal or consignor to sell goods consigned to him for a reward.
6. Consignment: it simply means bulk of goods or items transferred from one place to another
7. Consignment Inwards: These are bulk of goods sent to an agent (consignee) for sale within the same place with the principal (consignor)
8. Consignment Outwards: These are bulk of goods sent to an agent (consignee) in another country different from principal (consignor) counting of resident

OPERATION SYSTEM OF CONSIGNMENT ACCOUNT

ACCOUNT SALES FORMAT

#

Sales of goods received on consignment xxx

Less: charges

Import duty xx

Insurance xx

Distribution costs xx

Commission xx (xx)

Banker cheque enclosed xxx

Accounting treatment of consignment account

Entries are made in the books of the consignee

ENTRIES IN THE CONSIGNOR’S BOOK

1. Open two accounts
2. Goods on consignment account
3. Consignment account

In the books of the consignee (agent DR CR

#

NOTE: The consignment account is a trading, profit and loss account for one consignment.

Example 1

Goodluck of Ghana, whose financial year ends on 31^st December, consigned goods to Joshua, has agent in Nigeria. All transactions were started and completed in 2009. Details of the transactions were as follows:

1. 16 January: Goodluck consigned goods costing #100,000
2. 28 February: Goodluck paid carriage to Nigeria #10,000
3. Joshua the consignee sends the account sales on 31^stJuly when all the goods have been sold. It shows
4. Sales amounted to #150,000
5. Joshua expenses were import duty #5000 and distribution expenses #6000

iii. Commission had been agreed at 6% of sales, which amounted to #9000

1. Joshua paid balance owing #130,000

SOLUTION

In the books of Goodluck (consignor)

Consignment to Joshua A/c

January

Goods send consignment 100,000 Sales 150,000

February: Bank charges 10,000

July: Joshua

Import duty 5000

Distribution cost 6000

Commission 9000

Profit on consignment 20,000

150,000 150,000

Goods sent on consignment

16. January consignment to Joshua 100,000

Bank A/c

28. February consignment to Joshua 10,000

Joshua (consignee) 130,000

Joshua (consignee) A/c

31 July consignment Import duty 5000

31 July consignment sales 150,000 Distribution 6000

Commission 9000

Bank 130,000

150,000 150,000

In the books of consignee (Joshua)

Account sales

Garki close,

Abuja, Nigeria.

31 July, 2009

To:

Goodluck

Ghana

Sales of goods received on consignment 150,000

Import duty 5000

Distribution costs 6000

Commission 9000 20,000

Bank cheque enclosed 130,000

Goodluck (Consignor A/c)

31 July Bank

Import duty 5000 Bank (sales) 150,000

Distribution 6000

Commission on sales 9000

Bank 130,000

150,000 150,000

Bank’s A/c

Goodluck import duty 5000

Sales 150,000 Distribution 6000

To settle account 130,000

Profit and loss A/c Joshua

Commission on consignment 9000

Bad debts and consignment

When an agent sells the goods of the consignor, he will collect the sale money from the customer. If the customer defaults, the consignee need not pay the money in this regard to the consignor. In order to protect himself against such bad debts, the consignor pay the consignee a special commission called Del – credere commission to make sure the consignor indemnifies him against bad debts.

ASSIGNMENT

Page 334 question 4

WEEK 10

TOPIC: JOINT VENTURE ACCOUNT

Meaning of Joint Ventures

It is a form of business involving two or more persons, firms joining together with the aim of making profit over a specified period of time without any further business venture.

Parties involved in a joint venture business are known as venturers.

Main characteristics of Joint venture

For the fact that joint venture is temporary in nature, the following are its features

1. No separate books are kept to record the transactions each venturer records transactions in his own books in his own part of the enterprises in normal accounting records.
2. The profit sharing ratios must be clearly defined
3. The capital, activities and scope of the ventures must be laid down, e.g. one venture buys and other sells, but both must make a contribution to the progress of the ventures.
4. The arrangement is temporary in nature
5. No specific and established law guides the activities of joint venture.

Differences between Joint venture and Partnership

ACCOUNTING PROCEDURE

Each ventures opens an account to record all transactions that concern him. This account is usually tagged “Joint Venture / with the name of the other party to the venture”

The accounting records in each book are as follows:

DR CR

1. Joint Venture A/c xx

Bank xx

Being any form of payment

1. Bank xx

Joint venture A/c xx

Being any form of cash receipts

1. Joint Venture A/c xx

Any allowance xx

Being any agreed charges among the ventures

1. The entries in each venture account will be merged together into a special account called memorandum joint venture account. on this account, the profit or loss on the venture is ascertained.

NOTE

1. The memorandum account does not form part of the double entry, but is a mere summary book of all the transactions among the ventures and to ascerform profit or loss on the venture.
2. If profit is made; DR venture account and CR profit and loss account of each venture.
3. If loss is made; DR profit and loss account and CR venture account
4. When all these entries have been made, the balances remaining on the various joint venture account will show the indebtedness of one venturer to another.

Example 1

North and South decided to undertake a joint venture to but up goods in a liquidated company. The stock, which had a book value of #325,000 was obtained by the joint venturers at a discount of 50% payment was made on 1^st February 2009, when South sent a cheque for #50,000 to North to pay for the goods.

Profit were to be shared equally and each partner was entitled to a commission of 5% on the selling price of the goods which he sold.

In addition, North was to receive an office allowance of #500 and South was allowed to charge #2,750 for the wages of his employees who had been engaged on handling the goods.

The following expenditure was incurred by the ventures up to 31 July, 2009.

North, 1 March; carriage #1,250, insurance #3,250

South 31 July; rent for warehouse #30,000 on 1^st April, North received #70,000 and South #50,000 for goods sold, while on 14 July each received #40,000 and #45,00 respectively. North agreed to take the residue of stock value at #2,500 for his own use on 31^st July, when the venture was closed.

You are required to show the necessary accounts to record the above transactions and also the final settlement between the parties on 31 July 2009.

In the books of North

Joint Venture with South

1 March; Bank 162,500 1 Feb; Bank 50,000

1 March; Bank (carriage) 1,259 April sales 70,000

1 March; Bank (insurance) 2,250 14 July sales 40,000

Commission 3,500 31 July; pur. to own stock 2,500

14 July commission 2,000

Bal. c/f 9,500

172,000 172,000

Bal. b/f 9,500 31 July; Bank (South) 22,000

P & L on Joint Venture 12,500

22,000 22,000

Bank A/C

1 Feb, Joint venture South 50,000 1 Feb. purchase (JV) 162,500

1 April Joint Venture 70,000 1 March JV (Carriage) 1,250

31 July Joint Venture 40,000 1 March JV (Insurance) 2,250

31 July South 22,000 Bal. c/f 16,000

182,000 182,000

Bal. b/f 16,000

DR Commission A/C CR

April

Joint Venture with South 3,500

14 July, Joint venture with South 2,000

DR Office Expenses A/C CR

31 July Joint Venture with South 12,500

DR Purchases A/C CR

31 July, Joint Venture with South 2,500

DR Profit and loss on venture A/C CR

31 July, Joint Venture with South 12,500

In the books of South

Joint Venture with North

1 Feb; Bank 50,000 1 April; Bank (sales) 50,000

1 April Commission 2,500 14 July, Bank (sales) 45,000

14 July, Commission 2,200

31 July Rent 3,000

31 July, wages 2,750

Bal c/f 34,500

95,000 95,000

Bal. b/f 34,500

31 July, P&L on JV 12,500

31 July; Bank (North) 22,000

34,500 34,500

DR Bank A/C CR

April 1, JV with North sales 50,000 1 Feb; North 50,000

14^th July, JV with North (sales) 45,000 31 July, JV with North (rent) 3,000

31 July, North (cheque) 22,000

31 July, Bal. c/f 20,000

95,000 95,000

Bal. b/f 20,000

DR Commission A/C CR

April1 Joint Venture with North 2,500

14 July, Joint venture with North 2,250

DR Wages A/C CR

31 July Joint Venture with North 2,750

DR Profit on Joint Venture A/C CR

31 July, JV with North 12,500

In the books of both North and South

Memorandum Joint Venture A/C

South Sales 50,000

Rent 30,000 South 45,000 95,000

Wages 2,750 70,000

Commission 4,750 10,500 North

Sales 40,000 110,000

North North good

Purchases 162,500 Take over 2,500

Carriage 1,250

Insurance 2,250

Office allowance 500

Commission 5,500 172,000

Net profit 25,000

207,500 207,000

North ½ x 25000 12,500 Net profit 25,000

South ½ x 25000 12,500

25,000 25,000

Computation of benefits derived from the venture by each venture

North South

Profit 12,500 12,500

Commission 5,500 4,750

Office allowance 500 —–

Wages of own employees —– 2,750

18,500 20,000

Represented by

Stocks of goods 2,500 —–

Balance at bank 16,000 20,000

18,500 20,000

Stock of goods

When a joint venture is prepared before the whole of the goods are disposed off, an adjustment must be made for the value of the stock still on hand. The figure agreed upon for the valuation of the stock is credited to the joint venture account and debited to a stock suspense account.

Example 2

Plant Hoe and Reap entered into a joint venture for dealing in carrots. The transactions connected with this venture were:

2010

8 January Plant rented land #15,600

10 January Hoe supplied seeds cost #4,800

17 January Plant employed labour for planting #10,500

19 January Hoe charged motor expenses #1,700

20 January Plant employed labour for fertility #3,600

28 February Plant paid the following expenses:

Sundries #1,000; labour #1,800; fertiliser #2,900

17 March Reap employed labour for lifting carrots #7,300

30 March Sale expenses paid by reap #3,900

31 March Reap received cash from sale proceeds gross #98,700

=You are required to show the joint venture accounts in the books of plant, hoe and reap. Show in full the method of arriving at the profit on the venture which is to be apportioned:

Plant 7/2, Hoe ¼  and Reap 1/6

SOLUTION

In the books of plant

Joint Venture with Hoe and Reap

Rent 15,600

Labour planting 10,500

Labour fertilising 3,600

Sundries 1,000

Labour 1,800

Fertiliser 2,900

Share of profits 26,600 Bal. c/f 62,000

62,000 62,000

Bal. b/f 62,000 Cash from Reap 62,000

In the books of Hoe

Joint Venture with Plant and Reap

Seeds 4,800

Motor expenses 1,700

Share of profit 11,400 Bal. c/f 17,900

17,900 17,900

Bal. b/f 17,900            Cash from Reap 17,900

In the books of Reap

Joint Venture with Plant and Hoe

Lifting 7,300 Sales 98,700

Sale expenses 3,900

Share of profits 7,600

Bal. c/f 79,900

98,700 98,700

Cash to Plant 62,000 Bal. b/f 79,900

Cash to Hoe 17,900

79,900 79,900

Plant, Hoe and Reap Memorandum Joint Venture A/C

Rent 15,600 Sales 98,700

Labour (planting) 10,500

Labour fertilising 3,600

Sundry expenses 1,800

Lifting 7,300

Fertiliser 2,900

Motor expenses 1,700

Seeds 4,800

Sales expenses                3,900

Sundries 1,000

Share of profits

Plant 7/2 x 45,600 26,600

Hoe ¼ x 45,600               11,400

Reap 1/6 x 45,600 7,600

98,700 98,700

Summary

• A joint venture is simply a venture undertaken jointly by two or more persons or firms with a view to make profit.
• Joint venture is different from partnership in that it is more a temporary character. It is often concerned with one isolated transaction, such as buying up bankrupt stocks.
• Each venturer opens an account to record all members’ matters which concern the particular venture and this account is described as joint venture with the name of other venturer.
• A statement of operation for the venturer’s activities prepared is called memorandum joint venture account.
• Joint venture business is on – off business and not permanent in nature.

Assignment

Page 323 question 1

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