Project being run jointly

Project being run jointly

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I am working with a company within the building industry (Company A).   This company also has a 50% stake in a very similar company in a neighbouring geographical area (Company B).

It has been decided that we would share in the profits of one particular building project.  The split has been decided at an equitable 50:50 split.

Company A will be doing all of the admin and will invoice the customer and will also purchase the materials required.  Company B will provide most of the labour required and will be invoicing this and any other associated costs for the project over to Company A.

The project will only last for about 4 months. A proper internal P+L will be raised monthly so both companies will be aware of the projects progress.  Assuming that the project is profitable on completion then Company A then I am intending to issue a credit note to Company B for their 50% share.

My question really relates to the subsequent reporting.  Having collected all Sales and Cost during the period can Company A now show 50% of sales and 50% of the various cost categories in its books based upon the credit note issued and can Company B also now report Sales and various cost categories based upon the credit it will receive? 

If say sales where £500,000 (invoiced via Company A) and costs where £200,000 a credit for £150,000 would be issued from Company A to Company B.  Can Company B now show in its accounts sales of £250,000 and costs of £100,000 [based on the net balance of the credit received]?

I hope I have explained my question sufficiently

Replies (3)

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Stepurhan
By stepurhan
29th Aug 2014 15:59

Who are you?

You appear to be talking about two related companies trying to split a project 50/50 between them. So what is your relationship to this whole setup?:The implication at the start of the question is that you were to get a 50% share personally, but the rest of the query suggests otherwise.

Assuming you mean you work FOR Company A (and are therefore asking on its behalf rather than your own), I don't think your proposal would work. If the original paperwork puts the sale in company A, you cannot simply shift half of it to Company B by credit note. What would it be crediting? You could have Company B bill Company A, so each ends up with half the profit, but you can't just shift sales. Alternatively a properly set up joint venture might be better.

With the sums involved, you are better seeking face-to-face advice on this rather than going it alone.

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Chris M
By mr. mischief
29th Aug 2014 20:44

Either or

In my view for a variety of reasons you've got to decide whether you are consortium accounting or Joint Venture accounting here.  On the basis that no separate legal entity has so far been created to run the project, that rules out the JV.

B is correctly going to invoice A for its costs.  The correct way to deal with the profit share is for B to invoice A for that too.  Simple.  No mucking around with the cost bases to explain to the other directors, auditors or HMRC should the need arise.

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By aceman2
30th Aug 2014 13:58

Hi,

Thank you to both respondents for their advice.  I am just an employee of Company A and for clarification this is not a 'Joint Venture' in the accepted term of a new enterprise being created or anything like that

I have now struggled with the suggestion that I originally put forward in my question.  In retrospect it didnt seem to give a 'true and fair' reflection if I split the sales and costs in this fashion.  After all Company B never 'invoiced' the customer.

For simplicity my question now is "when Company B now invoices Company A (better than my idea of Company A issuing a credit note) is it acceptable (accounting and HMRC) for them to record this in their books as just "profit from joint operation"?

Thanks

 

 

 

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