A joint venture (JV) is a business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. Profit on venture can be ascertained with the help of the joint venture account. Goods bought on joint venture as well as expenses incurred in connection with the business are debited to the joint venture account and credited to the coventurer’s account or the joint bank account. When the goods are sold, the amount thereof is debited to the coventurer’s account or the joint bank account and credited to the joint venture account. If the parties have taken over plant or materials etc., the value will be debited to the account of the party concerned and credited to the joint venture account. The joint venture account will now show profit or loss which will be transferred to the personal accounts of the respective parties in their profit sharing ratio.

Here the cost of goods sold = 1,000
Invoice price will be = 1,000 + 10% of 1,000 = 1,100
Trade discount = 5% of 1,100 = Rs. 55
Thus sales to be recorded = invoice price –trade discount = 1,100 – 55 = Rs. 1,045

Remuneration paid for services is called commission. Commission is always paid on sales. Over-riding commission is an extra commission allowed to the consignee in addition to the normal commission. Such additional commission is generally allowed:
(i) To provide additional incentive to the consignee for the purpose of introducing and creating a market for a new product
(ii) To provide incentive for supervising the performance of other agents in a particular area
(iii) To provide incentive for ensuring that the goods are sold by the consignee at the highest possible price.
Here Invoice value of goods sent out Rs. 2,00,000 and 4/5th of the goods were sold by consignee at Rs. 1,76,000
The invoice value of the goods sold = 4/5th of 2,00,000 = Rs. 1,60,000
So surplus above the invoice value = 1,76,000 – 1,60,000 = 16,000
Commission on goods sold upto invoice price = 2% of 1,60,000 = Rs. 3,200
Commission on surplus above invoice price@10% = 10% of 16,000 = Rs. 1,600
Total commission = 3,200 + 1,600 = Rs. 4,800

Gross profit is a company’s revenue minus its cost of goods sold. Gross profit is a company’s residual profit after selling a product or service and deducting the cost associated with its production and sale.

Cost of goods sold is the direct costs attributable to the production or purchase of the goods sold by a company. It excludes indirect expenses such as distribution costs and sales force cost.

Here the carriage outward is expenses related to sales and will not be included in cost of goods sold and office rent is also indirect expense and will not be included in cost of goods sold.

Cost of goods sold in the above case = opening inventory + purchases + carriage inward – closing inventory = 20,000 + 85,800 + 2,300 – 18,000 = 90,100

Gross profit = sales – cost of goods sold = 1,40,700 – 90,100 = Rs. 50,600

The rectifying entry will be to debit purchases and to credit sales and A.

Many times during the operation of business, the owner may take out some cash from the business for his personal use. These withdrawals from the business are considered as Drawings. Considering the fact that the business is a separate accounting entity, it charges an interest on the drawings to the owner. Where interest is charged it is usually calculated at fixed rate percent from the date of each drawing to the date the accounts are closed. If the dates on which the amounts are drawn are not given, interest is calculated on the whole amount on the assumption that the money was drawn evenly throughout the year. In such case interest will be charged for 6 months.

FIFO, which stands for “first-in-first-out,” is an inventory costing method which assumes that the first items placed in inventory are the first sold. Thus, the inventory at the end of a year consists of the goods most recently placed in inventory. FIFO is one method used to determine Cost of Goods Sold for a business. In a period of rising prices, this method yields a higher ending inventory, a lower cost of goods sold, a higher gross profit (assuming constant price).

Owner’s capital refers to the sum of the business resources owned by the business owners. It is calculated through the subtraction of assets from liabilities. When a business pays all its debts, the amount remaining belongs to the business owner and it is the one that is referred to as Owners Capital or Owners Equity.
Formulas of closing capital:
Closing capital =
Opening capital + profit OR
Opening capital + profit + additional capital – drawings OR
Closing assets – closing liabilities
Here opening capital = Rs. 20,000
Borrowings during the year = Rs. 3,000 = loan
Drawings = Rs. 5,000
Profit earned during the year = Rs. 10,000
Closing capital = opening capital + profits – drawings = 20,000 + 10,000 – 5,000 = Rs. 25,000

The original cost of an asset takes into consideration all of the costs that can be attributed to its purchase and to putting the asset to use. These costs can include such factors as the purchase price, repairs, commissions, transportation, appraisals, warranties and installation.

Here an old machine was purchased for Rs. 60,000 then it was repaired for Rs. 5,000 and Rs. 5,000 paid on its installation.

Thus repairs incurred to bring the old furniture bought to use will be capitalized and will be included in the total cost of the asset and will not be debited to repairs account. Correct option is (d)

When owner withdraws money from a business for personal expenses it is known as drawings. Drawings accounting is used when an owner of a business wants to withdraw cash for private use. The bookkeeping entries are recorded on the drawings account. This drawings account is deducted from the capital account. since any amount paid for the personal
expenses for the proprietor from the firm will be treated as drawings, the amount Rs. 1,200 paid for
personal income tax of the proprietor from the petty cash will be treated as drawings and the journal
entry will be Dr. drawings and Cr. Petty Cash Rs. 1,200.