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Unit 4.3 Royalty Accounts Exam Problems

The document discusses royalty accounting concepts like short-working, lessee, and recoupment of short-working. It provides definitions for these terms and examples to illustrate short-working. The document also includes 10 problems related to royalty accounting, asking learners to prepare analytical tables and ledger accounts for royalty, minimum rent, short-working, and other related accounts.

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Rashmi Anuththara
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556 views4 pages

Unit 4.3 Royalty Accounts Exam Problems

The document discusses royalty accounting concepts like short-working, lessee, and recoupment of short-working. It provides definitions for these terms and examples to illustrate short-working. The document also includes 10 problems related to royalty accounting, asking learners to prepare analytical tables and ledger accounts for royalty, minimum rent, short-working, and other related accounts.

Uploaded by

Rashmi Anuththara
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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G. VENUGOPAL, Faculty, Department of Commerce, VVN Degree College, VV Puram, Bangalore -04.

Unit – 4.3 Royalty Accounts: Exam Questions and Problems:


Two Marks Question and Answers:
1. What is Short-working? (2014 Repeaters) (2018)
Ans. On account of the minimum rent clause contained in the royalty agreement, the
lessee has to pay to the lessor every year the minimum guaranteed amount. As
such, in the year of no output or low output, the minimum rent required to be paid by
the lessee to the lessor for that year will be definitely more than the actual royalty for
that year.
The excess of minimum rent over actual royalty calculated on the basis of
output or sales is termed as short-workings.

2. Who is Lessee? (2014 Repeaters)


Ans. The person who takes out the special rights from its owner on lease for a
consideration is called lessee or tenant or patentor or publisher.

3. What is Recoupment of Short-working? (2014 Fresher’s) (2015) (2019)


Ans. The right of getting back the excess payment made by the lessee in earlier
years is called the right of recoupment of the short-workings. The right of
recoupment of short-workings can be of three types. They are –
a) Restricted (fixed) to a certain period or b) Unrestricted (floating). c) Throughout
the period of lease

4. What is Royalty? (2015) (2016) (2018)


Ans. Royalty is the periodical consideration or payment, based on the output or sale,
made by one person, called lessee, to another person, called the lessor for taking
out on lease the special rights vested in the lessor.

5. Bring out the meaning of short-working with an example. (2017)


Ans. The excess of minimum rent over actual royalty calculated on the basis of
output or sales is termed as short-workings.
Example: M/s Himalaya Publishers printed a book on Advanced Accountancy at
minimum rent of Rs.2,00,000 per annum royalty being payable @ Rs.75 per copy
sold. No. of copies sold in the first year 2,000. In the above example, there is a
short-working of Rs.50,000 in the first year. i.e., Minimum Rent of Rs.2,00,000
minus Rs.1,50,000 actual royalty (2,000 copies x75 per copy).

GV. VVNDC Page 1


G. VENUGOPAL, Faculty, Department of Commerce, VVN Degree College, VV Puram, Bangalore -04.

Examination Problems:
November - 2014 Repeaters
Problem – 1. (5 marks)
Prepare an analytical table of royalties from the following:
a) Minimum Rent – Rs.10,000 p.a.
b) Royalty – Re. 1 per ton
c) Short-workings are recoverable during the first 3 years
d) Output during the first three years = 2,000, 5,000 and 15,000 tons respectively.

Problem – 2. (15 marks)


M/s ABC Co. Ltd. took a land on lease for a period of 25 years on 1-1-2009 on a royalty
of Rs.40 per ton with a minimum rent of Rs.4,00,000 and short-workings can be
recouped during the first 4 years. The annual output was as follows –
2009 - 5,000 tons; 2010 – 8,000 tons; 2011 – 10,000 tons; 2012 – 15,000 tons; 2013 –
20,000 tons. Prepare necessary ledger accounts in the books of ABC Co. Ltd.

November - 2014 (Fresher’s) (2019)


Problem – 3. (6 marks)
Prepare Royalty analysis table from the following details:
i) Minimum Rent Rs.75,000 p.a..
ii) Royalty payable Rs.5 per ton of output.
iii) Short-working of the year can be recouped on the next 2 years out of excess
royalty.
iv) Output for the first five years were:
Years: 1 2 3 4 5
Output in tons: 10,000 12,200 20,800 25,500 35,500

Problem – 4. (14 marks)


Hemanth leased an oil well from Venkat Oil Ltd. on 1-1-2010. The minimum rent was
Rs.2,00,000 and royalty was Rs.20 per ton of crude oil raised. The short-workings were
recoverable in the succeeding two years of such short-workings. The output during the
first 4 years were – 5,500; 8,000; 11,250; 12,500 tons.
Prepare Minimum Rent A/c, Royalty A/c, Short-workings A/c and Venkat Oil Ltd’s
A/c in the books of Hemanth.

November – 2015
Problem – 5. (6 marks)
Prepare an Analytical Table of Royalty from the following details:
Minimum Rent Rs.25,000 p.a.
Royalty Rs.2 per ton of ore raised.

GV. VVNDC Page 2


G. VENUGOPAL, Faculty, Department of Commerce, VVN Degree College, VV Puram, Bangalore -04.

Short-workings are recoverable during the first three years of the lease only.
The output for the first four years is as follows:
I year 3,000 tons, II year 10,000 tons, III year 30,000 tons and IV year 35,000 tons.

Problem – 6. (14 marks) (2019)


A mining company leased a property from ‘X’ at a royalty of Rs.10 per ton with a
minimum rent of Rs.24,000 p.a. Each years excess of minimum rent over roylaty is
recoverable out of royalties of next three years. The results of the workings are as
follows.
I year 2,000 tons; II year 3,000 tons; III year 4,000 tons; IV year 5,600 tons; V
year 6,000 tons.
Prepare necessary ledger accounts in the books of the company for five years.

November - 2016
Problem – 7. (6 marks)
Prepare an Analysis Table from the following details:
Royalty payable Rs.0.50 per ton of output.
Minimum rent Rs.7,500 p.a.
Shortworkings are recoverable during the first three years of the lease only.
Output during the first three years 10,000; 14,000; and 18,000 tons respectively.

Problem – 8. (14 marks)


X Co. Ltd. took a lease from a landlord for a period of 25 years from 1-1-2010 on a
royalty of Rs.2 per ton of coal raised with a minimum rent of Rs.20,000 and power to
recoup short-workings during the first 4 years of the lease. The annual output was as
follows –
2010 - 5,000 tons; 2011 – 8,000 tons; 2012 – 10,000 tons; 2013 – 15,000 tons; 2014 –
20,000 tons. Prepare Minimum rent A/c, Royalty A/c, Short-workings A/c and Landlord
A/c.

November- 2017
Problem – 9. (6 marks)
Prepare an analytical table of royalties from the following details:
a) Minimum Rent – Rs.20,000 p.a.
b) Royalty – Rs.2 per ton of ore raised.
c) Short-workings are recoverable during the first 3 years of the lease only.
d) The output for the first four years was 2013: 2,000 tons, 2014: 5,000 tons, 2015:
15,000 tons and 2016: 20,000 tons.

GV. VVNDC Page 3


G. VENUGOPAL, Faculty, Department of Commerce, VVN Degree College, VV Puram, Bangalore -04.

Problem – 10. (14 marks)


Ms. Monika patented an Automatic Door Closer and granted to Ms. Suraksha the
licence to manufacture and sell the Door Closers for 10 years on the following terms.

a) Suraksha to pay a Royalty of Rs.5 for every door closer sold with a minimum rent
of Rs.2,500 p.a.
b) Suraksha could set off the short-workings arising in any year against surplus
royalties’ payable in the next 2 years.
c) From the second year onwards the dead rent is agreed upon at Rs.2,000 instead
of Rs.2,500 and all other terms being unchanged. The other details are:
Year Sales (units) Year Sales (units)
2013 100 2014 200
2015 300 2016 500

Show ledger accounts in the books of Suraksha and Co. including minimum rent a/c.

November – 2018
Problem – 11. (6 marks)
Prepare an Analytical Table of Royalty from the following details:
Minimum Rent - Rs.25,000 p.a.
Royalty - Rs.2 per ton of ore raised.
Short-workings are recoverable during the first three years of the lease only.
The output for the first four years is as follows:
I year 3,000 tons, II year 10,000 tons, III year 30,000 tons and IV year 35,000 tons.

Problem – 12. (14 marks)


X Co. Ltd. took a lease from a landlord for a period of 20 years from 1-1-2010 on a
royalty of Rs.2 per ton of coal raised with a minimum rent of Rs.20,000 and power to
recoup short-workings during the first 4 years of the lease. The annual output was as
follows –
2010 - 5,000 tons; 2011 – 8,000 tons; 2012 – 10,000 tons; 2013 – 15,000 tons; 2014 –
20,000 tons.
Prepare Minimum rent A/c, Royalty A/c, Short-workings A/c and Landlord A/c.

GV. VVNDC Page 4

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