UNIT - II

Royalty
Accounts
Meaning
Asset - mines, quarry, patent, copyright, etc
other party - lessee, licensee, publisher
Royalty is the periodical payment made by the tenant to the landlord
for using his tangible or intangible assets
Royalty is calculated on the gross output or sales made by the tenant
Royalty is similar to rent
Definition
the royalty expresses an amount of payment by one, in return for some special
rights or privilege conceded to him by another person such as the rights for
publishing a book, or work a mine etc.

- J.R Batliboi
Parties
Lessee: is a person who makes the payment to the owner for utilizing the rights

Lessor: is a person to who the payment is made, is also the owner of the
property
Terms
Minimum rent or dead rent
◦ A minimum amount payable by the lessee to the lessor according to agreement irrespective
of the volume of output. It is payable only when the royalty is less then minimum rent

Short workings
◦ the excess of minimum rent over actual royalty is called short working. This excess is called
short working for lessee and it is called short working suspense for the lessor.

Recoupment or recovery of short workings

◦ Recoupment of short working refers to recovering the short working of any year, from
surplus royalty of the succeeding years
Example
Minimum rent Rs 15,000 p.a,

Royalty payable Re 1 per ton of output

◦ I Year Output 10,000 tons
◦ II Year Output 20,000 tons
Types of recovery of short workings
Fixed Recoupment

When Recoupment is permitted only over a fixed period from the date of commencement

Floating Recoupment

When Recoupment is permitted over a subsequent period following the year of short
workings. Fixed period is allowed from the year on which short workings are arises is
known as Floating Recoupment.

Recoupment within the life of lease

When Recoupment is permitted over the life time of lease, no restriction of time for
Recoupment of short workings.
Lapse of Short Working
cannot be recouped by the lessee (tenant)
It is a loss to the lessee
Difference between Rent and Royalty

Nature of assets
Basis of payment
Amount paid is fixed or variable
Minimum Rent
Parties involved
 Analytical table
Year Output Actual Royalty Minimum Short Short workings Short Amount
Rent workings recouped workings payable
occurred written
off
Problem 1
Prepare an Analytical Table from the following;

Royalty Rs. 5 per ton of output, Dead Rent Rs. 20,000 p.a.

Power to re-coup short workings during the first four years of the lease.

Output during the first five years: 2000, 3000, 4000, 4500 and 5000 tons respectively.
 Problem 1

Year Output Actual Minimu Short Surplus Short workings Short Amount
Royalty m Rent workings recouped workings payable
@ Rs 5 occurred written
off
I 2000 10,000 20,000 10,000 20,000

II 3000 15,000 20,000 5000 20,000

III 4000 20,000 20,000 - - 20,000

IV 4500 22,500 20,000 - 2500 2500 12,500 20,000

V 5000 25,000 20,000 - 5000 - - 25,000

Power to re-coup short workings during the first four years

Problem 2
Prepare an analytical table of- royalty from the following details

Minimum rent Rs. 30,000

Royalty Rs 2 per ton Coal raised.

Short workings are recoverable during first 3 years lease only.

The output for the 1st four years was

2001 - 4,000 tons, 2002 - 8,000 tons.

2003 - 16,000 tons, 2004 - 4,000 tons.

 Problem 2

Year Output Actual Minimu Short Surplus Short workings Short Amount
Royalty m Rent workings recouped workings payable
@ Rs 2 occurred written
off
2001 4,000 8,000 30,000 22,000 30,000

2002 8,000 16,000 30,000 14,000 30.000

2003 16,000 32,000 30,000 2,000 2000 34,000 30,000

2004 4,000 8000 30,000 22,000 30,000

Power to re-coup short workings during the first three years

Problem 3
Prepare an analytical table

i) Minimum rent Rs 25,000 for first two years there after Rs 35,000

ii) Royalty Rs 5 per ton

iii) Short workings are recoverable during first 3 years lease only.

iv) The output for the first four years was

2001 - 6,000 tons, 2002 - 8,000 tons.

2003 - 4,000 tons, 2004 - 9,000 tons

 Problem 3

Year Output Actual Minimu Short Surplus Short workings Short Amount
Royalty m Rent workings recouped workings payable
@ Rs 5 occurred written
off
2001 6000 30,000 25,000 - 5000 30,000

2002 8,000 40,000 25,000 - 15,000 40,000

2003 4000 20,000 35,000 15,000 15,000 35,000

2004 9000 45,000 35,000 15,000 45,000

Power to re-coup short workings during the first three years

Problem 4
Royalty 0.50 p per unit

Minimum Rent : Rs 7,500 pa

Short working recover is during first three years

Production:

I Year - 10,000 unit

II Year - 14, 000 units

III Year - 18,000 units

Prepare analytical table

 Problem 4

Year Output Actual Minimu Short Surplus Short workings Short Amount
Royalty m Rent workings recouped workings payable
@ 0.50p occurred written
off
I 10.000 5,000 7,500 2,500 7500

II 14.000 7,000 7,500 7500

III 18.000 9,000 7,500 - 1500 1500 1000 7500

Power to re-coup short workings during the first three years

Problem 5
On 1-1-03 X Collieries leased out some land for a minimum rent of Rs 3,000 for the 1st
year, Rs. 5,000 for the 2nd year and there after Rs. 10,000 p.a. merging Into a Royalty of
50 paise per tonne with a power to recoup short workings over two years after occurring
of the short workings. The annual output for the 4 years were.
2003 - 3,000 tonnes
2004 - 8,600 tonnes
2005 - 22,000 tonnes
2006 -21,000 tonnes
Prepare an analysis table
 Problem 5

Year Output Actual Minimu Short Surplus Short workings Short Amount
Royalty m Rent workings recouped workings payable
@ 0.50p occurred written
off
2003 3000 1500 3000 1500 3000

2004 8600 4300 5000 700 5000

2005 22,000 11,000 10,000 1000 1000 500 10,000

2006 21,000 10,500 10,000 500 500 200 10,000

recoup short workings over two years after occurring of the short workings
Problem 6
Prepare an analysis table from the following details.

Minimum rent Rs. 15,000 p.a,

Royalty payable 75 paise per ton of output

Short workings can be recouped in the next two years out of excess royalty

Output for the first four years

10,000 tons, 12,000 tons, 28,000 tons and 25,000 tons respectively.
 Problem 6

Year Output Actual Minimu Short Surplus Short workings Short Amount
Royalty m Rent workings recouped workings payable
@ 0.75p occurred written
off
I 10,000 7,500 15,000 7500 15,000

II 12,000 9000 15,000 6,000 15,000

III 28,000 21,000 15,000 6,000 6000 1500 15,000

IV 25,000 18,750 15,000 3750 3750 2250 15,000

Short workings can be recouped in the next two years out of excess royalty
Problem 7
The Bangalore Mine Company obtained a mine on lease for a period of 30 years beginning from 1.1.2000 on the
following terms:

(i) To pay minimum’ rent of Rs. 24,000 per year.

(ii) Each year’s excess of minimum rent over the actual royalties i.e., shortworkings can be recovered during the
subsequent two years.

(iii) Due to accident or strike minimum rent is to be reduced by 25% for that year.

(iv) Royalty was to be calculated at 50 paise per ton.

Production during four years from 2000 to 2003 was as follows:

Year Production In Tons

2000 - 28,000

2001 - 36,000

2002 - 60,000

2003 (Strike for 3 months) 44,000

Prepare analytical table.

 Problem 7

Year Output Actual Minimu Short Surplus Short workings Short Amount
Royalty m Rent workings recouped workings payable
@ 0.50 occurred written
p off
2000 28000 14,000 24,000 10,000 24,000

2001 36,000 18,000 24,000 6,000 24,000

2002 60,000 30,000 24,000 6000 6000 4000 24,000

2003* 44000 22,000 18,000 4000 4000 2000 18,000

shortworkings can be recovered during the subsequent two years.

strike minimum rent is to be reduced by 25% for that year
Problem 8
A lease agreement was entered in the year 2009. The Minimum Rent being Rs 1,00,000 with a
right to recoup the short workings during the next two years. Royalty during the first five years
was as follows.
Year Royalty (Rs)
2009 60,000
2010 90,000
2011 97,500
2012 1,20,000
2013 1,42,500
Prepare Analytical Table.
 Problem 8

Year Actual Minimum Short Surplus Short workings Short Amount

Royalty Rent workings recouped workings payable
occurred written off

2009 60,000 1,00,000 40,000 1,00,000

2010 90,000 1,00,000 10,000 1,00,000

2011 97,500 1,00,000 2500 40,000 1,00,000

2012 120,000 1,00,000 20,000 12,500 - 1,07,500

2013 142,500 1,00,000 42,500 1,42,500

recoup the short workings during the next two years