a) Loading
Meaning
Loading in accounting refers to the amount added to the cost price of goods to arrive at the invoice price. This additional amount includes profit margin or markup. Loading is commonly used in consignment accounting to ensure that goods are recorded at an inflated price for internal tracking and profit-sharing purposes.
Purpose of Loading
- To include a profit margin on the goods sent on consignment.
- To protect the pricing policy of the consignor.
- To record goods at invoice price rather than cost price for easy profit calculation.
Example:
If goods costing ₹10,000 are invoiced at ₹12,000, the loading is ₹2,000. This ₹2,000 is the markup or profit margin included in the invoice price.
Adjustment of Loading
In consignment accounts, loading is removed from various entries to find out the actual profit. For example, loading is adjusted in:
- Goods sent on consignment
- Closing stock with the consignee
- Returned goods
Journal Entry Example (For Adjustment of Loading):
Goods Sent on Consignment A/c Dr. To Consignment A/c
b) Joint Venture
Meaning
A joint venture is a temporary business arrangement between two or more parties (known as co-venturers) who agree to undertake a specific project or business activity. The venture is usually for a short period, and profits or losses are shared as per agreement.
Characteristics of Joint Venture
- Formed for a specific purpose (e.g., construction, import/export deal)
- Exists for a limited time
- Profits/losses are shared in an agreed ratio
- No need to form a separate legal entity
Accounting for Joint Ventures
There are two common ways to maintain accounts for joint ventures:
- Separate Set of Books: A separate joint venture account is maintained jointly by all parties.
- No Separate Books: Each party records their own transactions, and profit is calculated through a Memorandum Joint Venture Account.
Journal Entry Example (When no separate books are maintained):
Joint Venture with X A/c Dr. To Cash/Bank A/c
Settlement:
After completing the venture, profits are shared, and accounts are settled between the co-venturers.
Conclusion
Both loading and joint ventures are important concepts in accounting. Loading helps in profit estimation and inventory valuation, especially in consignment transactions. On the other hand, a joint venture facilitates collaboration on short-term projects with shared risks and rewards, requiring simple and flexible accounting methods.