Accounting Assignment

(JOINT VENTURE
ACCOUNTING)

SUBMITTED BY- AKASH PANDEY

SUBMITTED TO- MRS. MAYURI SINGH
FROM THE DEPT. (BBA.LLB)
 Table of Contents
What is Joint Venture(JV)?
Understanding Joint Venture
How to set up a JV?
Pros and Cons of JV
Partnerships and Consortiums
Format of accounting
Practical Examples
The Bottom Line
 What Is a Joint Venture (JV)?

A joint venture (JV) is a business arrangement in

which two or more parties agree to pool their
resources for the purpose of accomplishing a specific
task. This task can be a new project or any other
business activity.
Each of the participants in a JV is responsible
for profits, losses, and costs associated with it.
However, the venture is its own entity, separate from
the participants’ other business interests.
 Understanding a JV

Despite the fact that the purpose of a JV is typically

for production or research, one can also be formed
for a continuing purpose. JVs can combine large and
small companies to take on one or several projects
and deals.

Here are the four main reasons why companies form

JVs.
 1. To Leverage Resources

A JV can take advantage of the combined resources

of both companies to achieve the goal of the venture.
One company might have a well-established
manufacturing process, while the other company
might have superior distribution channels.
 2. To Reduce Costs

By using economies of scale, both companies in the

JV can leverage their production at a lower per-unit
cost than they would separately. This is particularly
appropriate with technology advances that are costly
to implement. Other cost savings as a result of a JV
can include sharing advertising or labor costs.
 3. To Combine Expertise

Two companies or parties forming a JV might each

have different backgrounds, skill sets, or expertise.
When these are combined through a JV, each
company can benefit from the other’s talent.
 4. To Enter Foreign Markets

Another common use of JVs is to partner with a local

business to enter a foreign market. A company that
wants to expand its distribution network to new
countries can enter into a JV agreement to supply
products to a local business, thus benefiting from an
already existing distribution network. Some
countries have restrictions on foreigners entering
their market, making a JV with a local entity almost
the only way to do business in the country.
 How to Set up a JV

Regardless of the JV structure, the most important

document will be the agreement that sets out all of
the rights and obligations of each party to the
venture. The objectives, the initial contributions of
the parties, the day-to-day operations, the right to
the profits, and the responsibility for losses are all set
out in the JV agreement. It is important to draft it
with care to avoid risking litigation down the road.
 Pros and Cons of a JV

THE PROS:
A joint venture gives each party the opportunity to exploit a
new business opportunity without bearing all of the cost
and risk. Joint ventures by nature are riskier than "business
as usual" and sharing the risk is a wise move.
If the right participants are involved, the joint venture also
starts out with a broader base of knowledge and pool of
talent than any one party possesses on its own. For
example, a joint entertainment venture set up by an
animation studio and a streaming content provider can get
off the ground more quickly—and probably with a better
chance of success—than either participant could alone.
THE CONS:
Embarking on a joint venture requires relinquishing
a degree of control. The vital decisions are being
made by two or more parties.
The companies involved must go into the project
with the same goals and an equal degree of
commitment.
Extreme differences between the participants' company
cultures and management styles can be a barrier to
success. Will the executives of an animation studio be
able to communicate in the same language as the
executives of a digital streaming giant? They might, or
they might line up in opposing camps.
Setting up a joint venture multiplies the number of
management teams involved. If one party undergoes a
significant change in its business structure or executive
team, the joint venture can get lost in the shuffle.
The Format of a JV Account
 Practical Examples

Mercedes-Benz and Volvo

In 2020, Daimler (now Mercedes-Benz) and Volvo
Group signed a joint venture to design and deploy
recharge stations for heavy-duty trucks and coaches.
The firms agreed to invest 1.2 billion Euros over the
next few years, with Daimler and Volvo Group holding
a 50% stake in the initiative. The collaboration was
viewed as a significant step in developing sustainable
transportation systems.
 Sony and Ericsson

Sony Ericsson was a joint venture between Japanese

electronics conglomerate Sony Corporation and Swedish
telecommunications firm Ericsson, established in 2001.
The collaboration aimed to manufacture mobile phones
and other gadgets under the brand name “Sony Ericsson.”
The joint venture combined Sony’s expertise in consumer
electronics with Ericsson’s expertise in mobile telephony. It
became one of the largest mobile phone manufacturers in
the world, known for producing some of the most
innovative devices, such as the Walkman. In 2012, Sony
acquired Ericsson’s share in the joint venture and renamed
it Sony Mobile Communications.
 JVs vs. Partnerships and Consortiums

A JV is not a partnership. That term is reserved for a single

business entity that is formed by two or more people. JVs join
two or more different entities into a new one, which may or
may not be a partnership.
The term “consortium” is sometimes used to describe a JV,
and there are similarities. However, a consortium is a more
informal agreement than a JV. For example, a consortium of
travel agencies can negotiate and give members special rates
on hotels and airfares, but it does not create a whole new
entity. The agencies still pursue their own businesses
independently. In a JV they would share ownership of the
created entity, jointly responsible for its risks, profits, losses,
and governance.
 The Bottom Line

A joint venture between companies can open the way

for expansion into a new line of business by each
participant at a relatively modest cost. In fact, it
sounds ideal: Each company contributes its own
expertise but the cost of the venture is split among
them.
It's only ideal, though, if the companies have a
shared vision and an equal commitment to the
success of the joint venture.