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Joint Venture profit share

when to account for it

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limited company client has been in a joint venture with two other parties

all income and costs have gone through the limited company with the other parties invoicing as subcontractors

the project has now finished and final profit shares are due to the 'subcontract parties'

can these be accrued for in our clients year end or should they account for this as and when the payments are made?

I may be over complicating things but would appreciate another point of view

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By johngroganjga
27th Nov 2019 12:18

You accrue. To do otherwise would surely take the JV partners’ profit shares into your client’s P&L.

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By WhichTyler
27th Nov 2019 12:35

Presumably the contract creates an obligation to pay some money after the year end. An obligation to pay money in the future is called a 'liability' and should be recorded as a 'credit' in the appropriate section of the balance sheet.

to 'balance' the accounts, you will need to record a 'double entry' which would be a 'debit' in the profit and loss section of the accounts

Stop me if I am getting too technical...

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Replying to WhichTyler:
paddle steamer
By DJKL
27th Nov 2019 13:05

Surely you may well need to do more than that, you could well have to split out and recognise the share of income of the venturer and the share of expenses etc, it sounds like it may well be a jointly controlled operation so if all transactions are within the company's records a bit more teasing out may well be needed when putting in place the net liability otherwise income, expenses and asset and other liabilities might well become overstated.

If FRS102 reporting then section 15 of same is worth the OP reading

https://www.frc.org.uk/getattachment/69f7d814-c806-4ccc-b451-aba50d6e8de...(March-2018).pdf

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Replying to DJKL:
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By WhichTyler
27th Nov 2019 14:03

Possibly, it depends on the contract, of which we know nothing. I should have made that clearer perhaps...

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By Tax Dragon
27th Nov 2019 13:14

Is it just me thinking this is an odd way of accounting? Wondering whether VAT was dealt with correctly? Etc?

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By The Dullard
27th Nov 2019 13:19

I'd want to start by knowing what the agreement between the parties actually says.
Then deal with the VAT issue that DaxTragon refers to, and then deal with the acocunting and croporation tax issues

If it's truly a joint venture, then the company should only be including it's share of the income and expenses, and will be acting as nominee in relation to the other two parties' shares, as DJKL suggests.

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Replying to The Dullard:
paddle steamer
By DJKL
27th Nov 2019 14:00

DaxTragon - sounds like a power station!!!!

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By fawltybasil2575
27th Nov 2019 14:51

@ busacrun (OP).

DJKL has kindly drawn to your attention FRS102, and specifically Para. 15 thereof, re Joint Ventures.

The criteria in Para. 15 (which are important in determining whether a Joint Venture exists) are relatively demanding, however.

Could I perhaps “venture to suggest” that your use of the expression “joint venture” is, in implying no criticism at all, very probably no more than a loose one; and that in reality there is simply an informal arrangement under which two subcontractors are to receive payments which are calculated by reference to the “profit” later ascertained on a contract. Indeed I note your words:-

“all income and costs have gone through the limited company with the other parties invoicing as subcontractors”.

Those words appear to support my view that Para 15 is probably inapplicable; and hence that the contract should be treated, by all parties to the transaction, as your client company’s receiving the Gross Income, and the payments to the “subcontractors” as just that (“Subcontracting”). If so, of course, the first two responses above would appear to be entirely correct.

Your first task, therefore, should be to ascertain whether a "Joint Venture" (in terms of Para. 15 of FRS 102) exists. I would "guess" that the likelihood of this is less than 15%: but if unfortunately that "15%" chance arises, then there are repercussions as alluded to by eminent contributors above.

Basil.

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Replying to fawltybasil2575:
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By Tax Dragon
27th Nov 2019 16:05

If this site has an award for the reply of the day, I wish to nominate yours. I have savoured every word. Twice.

Excellent advice, magnificently put.

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Replying to Tax Dragon:
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By fawltybasil2575
27th Nov 2019 23:04

@ Tax Dragon.

You are far too kind, but very many thanks.

Basil.

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