CA.

Naresh Aggarwal’s
ACADEMY of ACCOUNTS
Accounting • Costing • Taxation • Financial Management
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org

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contains a provision to the effect that if the minimum rent paid in any year exceeds
CA. Naresh Aggarwal’s the royalty for the year, the amount of the excess may be re recouped by the Coal
ACADEMY of ACCOUNTS Company out of the royalty payable in the following year only. The coal is raised as
follows:
Accounting • Costing • Taxation • Financial Management Years Coal Raised
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org 2014 2,000 tons
2015 12,000 tons
2016 24,000 tons
Q-1: Mr. A is a book author who grant his book publishing rights to M/s XYZ 2017 30,000 tons
Publishing House on the basis of Rs.5 per book sold subject to a minimum royalty of Give journal entries necessary to record these transactions in the books of the Coal
Rs.75,000 p.a. The publisher has the right to recoup short-workings during next two Company and prepare necessary accounts.
years of the short-workings and not thereafter. [Royalty Payments - 2014: Rs.1,00,000; 2015: Rs.1,00,000
The sale of books in six years was as under : 2016: Rs.1,00,000; 2017: Rs.1,50,000]
Year No. of Books Sold Year No. of Books Sold
2011 12,000 2014 20,000 Q-4: Indian Coal Company Ltd. are lessee of a mine on a royalty of Rs.10 per tonne
2012 14,000 2015 13,000 of coal raised, with a dead rent of Rs.6,00,000 p.a., and power to recoup
2013 17,000 2016 21,000 shortworkings during the first five years of the lease. The output for the first three
You are required to calculate amount of royalty of sales, short-workings, short-working years was as follows:
lapsed and royalty to be paid. Years Output
[Royalty Payments - 2011: Rs.75,000; 2012: Rs.75,000; 2013: Rs.75,000 2015 15,000 tonnes
2014: Rs.95,000; 2015: Rs.75,000; 2016: Rs.95,000] 2016 50,000 tonnes
2017 75,000 tonnes
Q-2: On 01.01.2013 Sohan, patentee of a new type of article required in Engineering Draw the necessary journal entries in the books of the Company giving effect to the
concern issued a licence to Soman for. five years for manufacture and sale of the above. You also required to write up Royalties Account, Shortworkings Account,
article on the following terms and conditions: Landlord Account and Profit and Loss Account.
(a) Royalty of Rs.5 per article manufactured. [Royalty Payments - 2015: Rs.6,00,000; 2016: Rs.6,00,000; 2017: Rs.6,00,000]
(b) Minimum Rent of Rs.50,000 p.a.
(c) Recoupment of shortworkings out of royalties in excess of minimum rent during Q-5: ABC Ltd had patented a quick-boiling kettle and gave the licence to Domestic
the two years immediately following subject to maximum of Rs.20,000 p.a. Appliance Company, the right to manufacture and sell under the same licence for
(d) Accounts were to be settled annually on 31st December. seven years.The stipulated terms were as follows:
The number of articles manufactured for 5 years was as follows: (a) A royality of Rs.40 to be paid on each kettle sold.
Years Units Produced (b) A Minimum payment of Rs.2,00,000 p.a.
2013 1,000 (c) The right to deduct in two following years any excess of the Minimum Rent over
2014 11,000 the calculated royalities in any year.
2015 26,000
The number of kettles sold was as follows:
2016 4,000
Year ended 31st March 2014 4,000 pcs.
2017 22,000
Year ended 31st March 2015 4,500 pcs.
You are required to calculate amount of royalty of sales, short-workings, short-working
Year ended 31st March 2016 5,400 pcs.
lapsed and royalty to be paid.
Year ended 31st March 2017 6,500 pcs.
[Royalty Payments - 2013: Rs.50,000; 2014: Rs.50,000; 2015: Rs.1,10,000
Year ended 31st March 2018 7,500 pcs.
2016: Rs.50,000; 2017: Rs.90,000]
Give journal entries and ledger accounts as they would appear in the books of the
Domestic Appliance Ltd. to record these transactions.
Q-3: A Coal Company takes a lease of a mine from 01.01.2014, paying a minimum
[Royalty Payments - 2013-14: Rs.2,00,000; 2014-15: Rs.2,00,000
rent of Rs.1,00,000 p.a. merging in a royalty of Rs.5 per ton of coal raised. The lease
2015-16: Rs.2,00,000; 2016-17: Rs.2,40,000]
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Q-8: On 1st January 2014, the ABC Ltd. leased some land for a minimum rent of
CA. Naresh Aggarwal’s Rs.3,00,000 for the first year, Rs.5,00,000 in the second year and there after
ACADEMY of ACCOUNTS Rs.10,00,000 per annum merging into a royalty of Rs.50 per ton with power to recoup
shortworkings over two years after occurring of shortworkings. The outputs were as
Accounting • Costing • Taxation • Financial Management follows:
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org 2014 3,000 tons
2015 8,600 tons
2016 24,000 tons
Q-6: Raman who owned a patent of a counting machine, granted licence to Kapoor 2017 30,000 tons
Brothers, to manufacture and sell such machines on the following terms: 2018 32,000 tons
(i) The licence shall in force for five years from 01.01. 2014. Show how the accounts would appear in the books of the ABC Ltd.
(ii) Kapoor Brothers to pay a minimum sum of Rs.1,20,000 p.a. merging into a royalty [Royalty Payments - 2014: Rs.3,00,000; 2015: Rs.5,00,000; 2016: Rs.10,00,000
of Rs.20 per machine sold, payable on 31st December each year. 2017: Rs.14,80,000; 2018: Rs.16,00,000]
(iii) If in any year the minimum was in excess of royalty, the same could be recovered
out of the royalty in excess of the next one year only. Q-9: The Star Mine Company obtained a mine on lease for a period of 30 years
The number of machines sold were: beginning from January 2014 on the following terms:
(a) To pay minimum rent of Rs.2,40,000 p.a.
2014 4,000 pcs.
(b) Each year’s excess of minimum rent over the actual royalties i.e., shortworking
2015 5,500 pcs.
can be recovered during the two subsequent years.
2016 8,750 pcs.
(c) Due to accident or strike minimum rent is to be reduced proportionally for that
2017 5,750 pcs.
year.
2018 6,600 pcs.
(d) Royalty was to be calculated at Rs.5 per ton.
Show Royalty A/c Shortworkings A/c and Raman’s A/c in the books of Kapoor
Brothers. Production during four years from 2014 to 2018 was as follows:
[Royalty Payments - 2014: Rs.1,20,000; 2015: Rs.1,20,000; 2016: Rs.1,65,000 Year Production (ton)
2017: Rs.1,20,000; 2018: Rs.1,20,000] 2014 28,000
2015 36,000 (Business closed due to flood for 2 months)
2016 60,000
Q-7: Ajay who owned a copyright of a book, granted licence to Vijay Publishers, to 2017 44,000 (Strike for three months)
publish and sell his books on the following terms: 2018 50,000
(i) Vijay Publishers to pay a minimum sum of Rs.60,000 p.a. merging into a royalty Give necessary journal entries in the books of the Star Mine Company.
of Rs.20 per book sold, payable on 31st December each year. [Royalty Payments - 2014: Rs.2,40,000; 2015: Rs.2,00,000
(iii) If in any year the minimum was in excess of royalty, the same could be recovered 2016: Rs.2,40,000; 2017: Rs.2,00,000; 2018: Rs.2,50,000]
out of the royalty in excess of the next one year only.
The number of machines sold were: Q-10: A coal mine is leased to National Coal Company on a royalty of Rs.10 per ton
on the output. A minimum rent of Rs.1,60,000 a year and allowance for shortworkings
2014 2,000 pcs.
are provided in the lease for first three years only. The coal actually raised in a
2015 2,750 pcs.
series of years is as follows:
2016 4,375 pcs.
I year 8,000 tons
2017 2,875 pcs.
II year 10,000 tons
2018 3,300 pcs.
III year 20,000 tons
Show Royalty A/c Shortworkings A/c and Ajays’s A/c in the books of Vijay Publishers.
IV year 28,000 tons
[Royalty Payments - 2014: Rs.60,000; 2015: Rs.60,000; 2016: Rs.82,500
V year 14,000 tons
2017: Rs.60,000; 2018: Rs.60,000]
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Q-13: Mohan owned the patent of a folding chair. On 1st January 2013, he granted
CA. Naresh Aggarwal’s Sohan a licence for 5 years to manufacture and sell the chair on the following terms:
ACADEMY of ACCOUNTS (a) Royalty of Rs.100 per chair sold.
(b) Minimum Rent of Rs.1,50,000 p.a.
Accounting • Costing • Taxation • Financial Management (c) Shortworking could be recouped only within two years following year in which
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org the shortworking occur subject to a maximum of Rs.30,000 p.a.
(d) If in any year normal sale was not attained due to strike, the minimum rent was
to be regarded as having been reduced proportionately, having regard to the
Draw up Royalty Account, Landlord Account and Shortworkings Account and in the length of the stoppage.
books of the National Coal Company. The number of chairs sold during the lease period was as follows:
[Royalty Payments - I Year: Rs.1,60,000; II Year: Rs.1,60,000
Year ended 31st December 2013; 900
III Year: Rs.1,60,000; IV Year: Rs.2,80,000; V Year: Rs.1,60,000]
Year ended 31st December 2014; 1,300
Year ended 31st December 2015; 2,000
Q-11: A Colliery Company took a lease of a coal mine for a period of 20 years from
Year ended 31st December 2016; 1,400
01.01.2012 upon the terms of a royality of Rs.50 per ton of the output with aminimum
Year ended 31st December 2017; 1,450
rent of Rs.8,00,000 p.a. with power to recoup shortworkings over the first four years
of the lease only. During the year 2016, there was a stoppage due to strike lasting 4 months.
You are required to prepare the Royalty Account, Landlord’s Account and You are required to show the
Shortworkings Account in the books of the Colliery Company assuming the output (i) Royalties Receivable Account,
for the first six years to be as follows: (ii) Royalties, Surpense Account,
2012 6,000 tons (iii) Sohan’s Account in the books of Mohan.
2013 8,000 tons [Royalty Payments - 2013: Rs.1,50,000; 2014: Rs.1,50,000
2014 16,000 tons 2015: Rs.1,70,000; 2016: Rs.1,20,000; 2017: Rs.1,50,000]
2015 20,000 tons
2016 18,000 tons Q-14: A Colliery Company leased a property from Landlord at a royalty of Rs.0.50
2017 15,000 tons per ton with a minimum rent of Rs.1,00,000 p.a. Each year’s excess of minimum rent
[Royalty Payments - 2012: Rs.8,00,000; 2013: Rs.8,00,000; 2014: Rs.8,00,000 over royalty is recoverable out of royalties of next three years.In the event of strike
2015: Rs.8,00,000; 2016: Rs.9,00,000; 2017: Rs.8,00,000] and the minimum rent is not reached, the lease provided that the actual royalty earned
for the year only and discharged all the rental obligations for that year.
Q-12: Bihar Coal Company are lessees of a mine on royalty of Rs.1 per ton of coal The result of working was as follows:
raised with a Minimum Rent of Rs.80,000 per annum with right to recoup shortworkings
Year Output in tons
during the first five years of the lease. The output for the first five years was as
2013 1,50,000
under:
2014 2,10,000
1st year 16,000 tons
2015 (strike) 1,20,000
2nd year 40,000 tons
2016 1,60,000
3rd year 80,000 tons
2017 2,20,000
4th year 1,00,000 tons
Write up the accounts in the books of the Colliery Company.
5th year 1,20,000 tons
[Royalty Payments - 2013: Rs.1,00,000; 2014: Rs.1,00,000
Write up the Royalties, Shortworkings and Landlord accounts in the books of the
2015: Rs.60,000; 2016: Rs.1,00,000; 2017: Rs.1,00,000]
Company.
[Royalty Payments - 1st Year: Rs.80,000; 2nd Year: Rs.80,000
Q-15: P Ltd. took a mine on lease from Landlord at a given rate of royalty with a
3rd Year: Rs.80,000; 4th Year: Rs.80,000; 5th Year: Rs.80,000]
minimum rent of Rs.40,000 per year. Each year’s excess of minimum rent over
royalties is recoverable out of the royalties for the next years only. In the event of a
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(3) With effect from the end of the second year, agreement was varied and a minimum
CA. Naresh Aggarwal’s annual payment of Rs.50,000 was substituted for Rs.40,000, the other terms of
ACADEMY of ACCOUNTS the agreement remaining unchanged.
The production and closing stock of closers for the first four years were:
Accounting • Costing • Taxation • Financial Management Production Closing Stocks
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org Year ended 31st Dec. 2014 2,500 units 5,00 units
Year ended 31st Dec. 2015 4,500 units 1,000 units
Year ended 31st Dec. 2016 5,700 units 700 units
strike and the minimum rent not being realised, it was provided that the actual royalties Year ended 31st Dec. 2017 6,300 units 1,500 units
earned for the year would be the full royalty obligation for the year. You are required to show the ledger accounts recording the above transactions in
Year Rs. respect of royalties in the books of the Varun which are closed annually on 31st
1st year Nil December.
2nd year 12,000 [Royalty Payments - 2014: Rs.50,000; 2015: Rs.50,000; 2016: Rs.40,000; 2017: Rs.45,000]
3rd year (Strike) 25,000
4th year 45,000 Q-18: Sunil had patented a new type of pocket transistor and on 01.04.2014, granted
5th year 60,000 Anil a licence for 20 years to manufacture and sell the transistor on the following
Draw up Shortworkings Account, Landlord Account and Royalties Account. terms.
[Royalty Payments - 1st Year: Rs.40,000; 2nd Year: Rs.40,000 (a) Anil to pay a royalty of Rs.5 for each transistor manufactured and a further
3rd Year: Rs.25,000; 4th Year: Rs.40,000; 5th Year: Rs.60,000] royalty of Rs.3 for each transistor sold with a minimum rent of Rs.80,000 p.a.
(b) If in any year, the royalties calculated on the transistors manufactured and sold
Q-16: Dark Coal Company acquired on lease a coal mine on a royalty of Rs.5 per be less than the minimum rent, Anil have the right to recoup shortworking out of
ton of coal brought on the surface with a minimum rent of Rs.5,60,000 a year with no the royalties in excess of the minimum rent during the two years immediately
right to recover shortworkings except in case of strike. following, subject to a maximum amount of Rs.20,000 p.a.
10% of the coal taken out from the mine is lost in weight in bringing the coal on the The number of transistors manufactured and sold for the first four years were as
surface. follows:
The output was as follows: Year Manufactured Sold
2014 8,000 5,000
1st year 20,000 tons
2015 10,000 7,000
2nd year 80,000 tons
2016 25,000 15,000
3rd year 1,20,000 tons
4th year 1,70,000 tons 2017 5,000 20,000
5th year 80,000 tons 2018 15,000 5,000
In the fifth year, there was a strike. Show the Minimum Rent Account, Royalty Account All the payments were made by Anil on the due date. Prepare
and Shortworkings Account for the five years. (i) Anil’s Account
[Royalty Payments - 1st Year: Rs.5,60,000; 2nd Year: Rs.5,60,000 (ii) Royalties Receivable Account
3rd Year: Rs.5,60,000; 4th Year: Rs.7,65,000; 5th Year: Rs.5,60,000] (iii) Shortworkings Allowable Account for the first five years as they would appear in
the books of Sunil.
Q-17: Arun who had patented an automatic door closer granted to Varun a licence [Royalty Payments - 2014: Rs.80,000; 2015: Rs.80,000; 2016: Rs.1,50,000
for ten years to manufacture and sell the door closer on the following terms: 2017: Rs.80,000; 2018: Rs.90,000]
(1) Varun to pay a royalty of Rs.10 for every door closer sold with a minimum rent of
Rs.50,000 per annum, calculations to be done annually as on 31st December.
(2) If, for any year the royalties calculated on door closer sold amount to less than
Rs.50,000 Varun may set off the deficiency against royalties payable in excess
of that sum in the next two years.
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CA. Naresh Aggarwal’s

ACADEMY of ACCOUNTS
Accounting • Costing • Taxation • Financial Management
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org

Journal Entries

In the books of Lessee (Tenant) In the books of Lessor (Landlord)

1. When Royalty is payable :

Royalty A/c Dr. Lessee A/c Dr.
Short-Workings A/c (if any) To Royalty Receivable A/c
To Landlord A/c To Short-Workings Allowable A/c (if any)

2. For payment to Landlord :

Landlord A/c Dr. Bank A/c Dr.
To Bank A/c Short-Workings Allowable A/c (if recouped)
To Short-Workings A/c (if recouped) To Lessee A/c

3. For Royalty transferred to Trading / Profit & Loss A/c :

Trading / Profit and Loss A/c Dr. Royalty Receivable A/c Dr.
To Royalty A/c To Trading / Profit and Loss A/c

4. For lapes Short-Workings transferred to Trading / Profit & Loss A/c :

Trading / Profit and Loss A/c Dr. Short-Workings Allowable A/c Dr.
To Short-Workings A/c To Trading / Profit and Loss A/c