Royalty Accounts notes and explanation PDF

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UNI TI I ROYALTY ACCOUNT Meani ng An I ndi vi dual ,fir m,companyoranyot heri ns t i t ut i on payscer t ai n amountas peragr eementf oracqui r i ngspeci alr i ght sf orusi ngot her ’ sPr oper t y

Defini t i onAccor di ngt oWi l l i am Pi ckl es “ Royal t yi st he r emuner at i on payabl et o per son i nr espectoft he us e ofan asse t ,whe t he rhi r edorpur chasedf r om suc h pe r s on cal c ul at edbyr e f er enc et o andv ar yi ngwi t hqual i t i espr oduc edorsol dasar esul tofsuc has se t ”  

Cons i der at i onf ort heus eofspe ci alr i ghti scal l edRoyal t y Thi si s mos t l y payabl e on publ i shi ng a book,manuf ac t ur e ,pat ent ed ar t i c l eorwor ki ngonmi ne .

TypesofRoyal t y 1.Mi ni ngRoyal t i e s 2.Oi l we l l sRoyal t i es 3.Br i ckmaki ngRoyal t i es 4.Pat entRoyal t i es 5.Copyr i ghtRoyal t i es 6.Royal t i es i n connec t i on wi t h mac hi nes ,secr e t pr ocess and t echni cal knowl edgee t c . , 7.Royal t i est of or e i gncompani esf orsal eofPr oduct i ons 8.Tr ademar kRoyal t i es

TERMS Owner=LandLor ds,l essor User=userofl andLessee Rent  

I ti saconsi der at i onpayabl ef ort heus eofsomet angi bl easse t s Genti smos t l ypayabl eacc or di ngt ot i measperday ,pe rwee k,permont h orperyearande t c .

Royal t y 

Royal t yi st he cons i der at i on payabl ef or t he us e ofs peci alr i ghti na t angi bl eori nt angi bl easse t ,butt hepaymentofr oyal t ydependsonyi e l d orpr oduc t i one t c.

Mi ni mum r ent  

Mi ni mum r enti s al so known as Fi xed r ent ,Dead Rent ,Fl atr entor c ont r actr ent . Mi ni mum r enti st heamountbe l ow whi c hl andl or d/Owner /Le ssernev er accepti nanyy earf or mt heper sonwhohast opayt her oyal t yi ncase .

Shor twor ki ng 

Excessofmi ni mum r entov err oyal t yi scal l e dshor twor ki ng  Shor twor ki ng=Mi ni mum r ent–Royal t y  Di ffer encebe t weent heAct ualr oyal t yandmi ni mum Rent

Sur pl us 

Excessofr oyal t yov ermi ni mum r enti scal l e dsur pl us  Sur pl us=Royal t y-Mi ni mum r ent

Royal t yAccount s Jour nalEnt r i esi nt heBooksofLes see Cas e1:WhenRoyal t yi sLesst hanMi ni mum Rent Cas eI I :Whe nRoyal t yi sequalt omi ni mum r ent Cas eI I I :Whe nRoyal t yi sMor et hanMi ni mum Rent

Jour nalEnt r i esi nt heBooksofLandl or d Cas eI :Whe nRoyal t yi sLesst hanMi ni mum Rent Cas eI I :Whe nRoyal t yRecei v abl ei sEqualt oMi ni mum Rent Cas eI I I :Whe nRoyal t yi sMor et hanMi ni mum Rent

Jour nalEnt r i esi nt heBooksofLessee

1

Case1 WhenRoyal t yi sLesst han Mi ni mum Rent Whe nr oyal t yi spayabl e

CaseI I WhenRoyal t yi sequalt o mi ni mum r ent Whe nr oyal t yi spayabl e

CaseI I I WhenRoyal t yi sMor et han Mi ni mum Rent Whe nr oyal t yi spayabl e

Royal t yA/C Dr . Shor twor ki ngsA/C Dr . ToLandl or dA/C

Royal t yA/C Dr . ToLandl or dA/C

Royal t yA/C Dr . ToLandl or dA/C

( Bei ngr oyal t i esear ne dand ( Bei ngr oyal t year ne dandshor t payabl et ol andl or d) wor ki ngst obepayabl et ot he l andl or d) Whe namountofr oyal t yi s Whe npaymentofr oyal t yi s made pai d 2

3

Landl or dA/cDr . Landl or dA/C Dr . ToBankA/C ToBankA/C ( Bei ngamountpai dt ol andl or d) ( Bei ngpaymentmadet o l andl or d) Forcl osi ngr oyal t yac countat Whe nr oyal t yac c ounti s t heendoft heyear c l osedatt heendofy ear P&LA/C Dr . ToRoyal t y

P&LA/C Dr . ToRoyal t yA/C

( Bei ngt heamountofr oyal t i es t r ans f er r edt oP&LA/C) Forcl osi ngr oyal t yac countat t heendoft heyear :

( Bei ngt het r ans f erof r oyal t i est oP& LA/C)

( Bei ngr oyal t i esear ne dandpayabl e t ol andl or d)

Forwr i t i ngoffshor twor ki ng,i fany Landl or dA/C Dr . ToShor twor ki ngsA/C ( Bei ngr ec oupmentofS. W.ofear l i er y ear ) Forpaymentofr oyal t yi smade Landl or dA/C Dr . ToBankA/c ( Bei ngpaymentmadet ol andl or d)

Youcanal socombi nel as tt wo( 2 &3)t r ans ac t i onsi nt osi ngl e t r ansac t i on

P&LA/cDr . ToRoyal t yA/C

Landl or dA/C Dr . ToBankA/C ToShor twor ki ngsA/C ( Bei ngr ec oupmentofS. W.t ot he ext entof *_ __andbal anc epai dt o l andl or d)

( Bei ngamountofr oyal t i es t r ans f er r edt oP&LA/c )

Jour nalEnt r i esi nt heBooksofLandl or d

1

2

Case1 WhenRoyal t yi sLesst han Mi ni mum Rent Att het i mewhe nr oyal t yi s r ecei vabl e

CaseI I CaseI I I WhenRoyal t yRecei vabl ei s WhenRoyal t yi sMor et han Equalt oMi ni mum Rent Mi ni mum Rent Att het i mewhe nr oyal t yi s Att het i mewhe nr oyal t yi s r ecei vabl e r ec ei vabl e

LesseeA/C Dr . ToRoyal t yr ecei v abl eA/c ToRoyal t yr eser v eA/C

LesseeA/C Dr . ToRoyal t yr ecei v abl eA/c

LesseeA/C ToRoyal t yr ecei vabl eA/C

( Bei ngt her oyal t yr ec ei vabl e ear ned)

( Bei ngt heamountofr oyal t y r ec ei vabl eear ne d)

Onr ecei ptoft heamount

Forwr i t i ngofr oyal t yr eser v eA/c

BankA/C ToLesseeA/C

Royal t yr eser v eA/C Dr . ToLesseeA/C

( Bei ngt heamountofr oyal t y r ecei vabl eear nedanddi ff. be t weenmi ni mum r entand r oyal t yr ec ei vabl et r ans f e r r edt o r oyal t yr eser v eA/c) Whe nabov eamounti sr ecei v ed BankA/cDr . ToLesseeA/C

( Bei ngt heamountr ecei v edf r om l essee) Forcl osi ngr oyal t yr ecei vabl e acc ount 3

Royal t yr ec ei vabl eA/cDr . ToP&LA/C ( Bei ngamountofr oyal t y r ecei vabl et r ans f er r edt oP&L)

( Bei ngt heamountr ecei v ed ( Bei ngr oyal t yr eser v er ec ouped) f r om l essee) Forcl osi ngr oyal t yr ecei vabl e Onr ecei ptofr oyal t yamount acc ount BankA/C Dr . Royal t yr ec ei vabl eA/C Dr . ToLesseeA/C ToP&LA/C ( Bei ngamountr ecei v edf r om l e ssee) ( Bei ngt r ans f erofr oyal t y r ecei vabl eA/ct oP&LA/C) Youcanal socombi nel as tt wo( 2 &3)t r ans ac t i onsi nt osi ngl e t r ansac t i on BankA/C Dr . Royal t yr eser v eA/C Dr . ToLesseeA/C ( Bei ngamountr ecei v edandr oyal t y r eser v e r ec ouped) Forcl osi ngr oyal t yr ec ei vabl e acc ount : Royal t yr ec ei vabl eA/C ToP&LA/C ( Bei ngt r ans f erofr oyal t yr ecei vabl e A/ct oP& LA/c )

Calculate Actual Royalty rent, short workings and Recoupment (Recovery) Year 2016 2017 2018

Sales 4000 1000 5000  Royalty Rs. 2 Per Book  Minimum Rent is 3000

Year

Sales

2016 2017 2018

4000 1000 5000

Actual Royalty 4000*2= 8,000 1000*2=2,000 5000*2=10,000

Actual Royalty 8,000 2,000 10,000

Minimum Rent 3000 3000 3000

Short workings 1000 -

Surplus recovered 1000

Paid 8000 3000 9000

Coal Ltd, got lease of mine on basis of 50 paisa per ton. Minimum rent of 5000. Tenant has a right to recoup short workings during first four (4) years of lease. Show the journal entries in the book of companies Year

2010 2011 2012 2013 2014

Outpu t 2000 6000 10000 18000 20000

Points to be noted    

User is = coal ltd Royalty = 50 paisa per ton Minimum rent of 5000 Recoupment = 4 years

Year

Outpu t

Actual Royalty

Minimum Rent

2010

2000

1000

5000

2011

6000

3000

5000

2012 2013

10000 18000

5000 9000

5000 5000

Analytical table Short Short workings working Def Surplu Recovered s 400 0 200 0 -

Short working Unrecovered Transferred to P&L A/C

Paid To Land Lord

-

-

-

5000

-

-

-

5000

4000

4000

2000

5000 5000

2014 Total

20000 56000

10000

5000 28000

25000

600 0

4000

4000

1000 2000

21000

Journal entries in the books of Coal ltd Date 31-12-2010 (less than minimum rent)

Date 31-12-2011 (less than minimum rent)

Date 31-12-2012 (Equal to minimum rent)

Date 31-12-2013 (more than minimum rent)

Date 31-122014

Particulars Royalty A/c Dr. Short working A/C To Landlord A/c Land lord A/c Dr. To Cash/Bank P&L A/C Dr. To Royalty A/C

Particulars Royalty A/c Dr. Short working A/C To Landlord A/c Land lord A/c Dr. To Cash/Bank P&L A/C Dr. To Royalty A/C Particulars Royalty A/c Dr. To Landlord A/c Land lord A/c Dr. To Cash/Bank P&L A/C Dr. To Royalty A/C

Amount 1000 4000

Amount

5000 5000 5000 1000 1000

Amount 3000 2000

Amount

5000 5000 5000 3000 Amount 5000

3000 Amount 5000

5000 5000 5000

Particulars Royalty A/c Dr. To Landlord A/c Land lord A/c Dr. To Cash/Bank To short workings recovered (recouped) P&L A/C Dr. To Royalty A/C To short workings irrecoverable A/C Particulars Amount Royalty A/c Dr. 10000 To Landlord A/c Land lord A/c Dr. 10000 To Cash/Bank P&L A/C Dr. 10000 To Royalty A/C

5000

Amount 9000

Amount 9000

9000 5000 4000 11,000 9000 2000 Amount 10000 10000 10000

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Publisher (Bloomsbury) (user)...