On 1 July, 2020, Bonuke and Naomi entered in a joint venture trading in electrical appliances and agreed to share profit and losses equally. The following transactions took place during the year:

1. Bonuke purchased electrical appliances Shs 45 million and drew a four months period bill Shs 30 million on Naomi. Bonuke discounted the bill by 1.6%.

2. The following expenses were paid by the parties:

Expense Bonuke Naomi

Shs Shs

Carriage 900,000 -

Commission on sales 90,000 -

Transport cost 60,000 120,000

Other expenses 100,000 180,000

Advertising 250,000 130,000

3. Sales made by the parties were: Bonuke Shs 32,100,000 and Naomi Shs 22,500,000 with allowance for faulty electrical appliances of 2% and 1.8% respectively on sales.

4. Retained electrical appliances by the parties for personal use were Shs 2.4 million and Shs

3.6 million for Bonuke and Naomi respectively.

5. Bonuke was credited with Shs 270,000 for warehouse and Shs 180,000 for insurance. 6. The expenses in connection with the discount to the bill were to be treated as a charge against the venture.

Required:

As a student of Intermediate Accounting course you have been approached by partners of the joint venture for assistance.

a) Explain to Bonuke and Naomi, the features of a joint venture.

b) Prepare the following ledgers:

i) Memorandum account.

ii) In the books of Bonuke, joint venture with Naomi. (iii) In the books of Naomi, joint venture with Bonuke.