Royalty

Accounts

1. Copper Inc leased a mine on 1st April 2011 subject to minimum rent of Rs.
1,50,000 at a royalty of Rs. 20 per tonne. An added stipulation states that
short workings are recoupable over the first three years of the lease.
Output for the first four years are as follows: 4,000, 6,500, 10,500 and
9,000 tonnes. Draft the necessary journal entries in the books of the
company.

2. ABC associates obtained lease of land from Mr. Sreenivas for a period of
20 years from 1st Jan 2011, paying a minimum rent of Rs 8,000 pa,
merging into a royalty of 0.50 paise per ton of stones cut. The stones cut
amount to production is as follows:
Year Production Year Production in tones
in tones
2011 2000 2012 10,000
2013 20,000 2014 32,000

Assuming that Srinivas grants recoupment rights as follows:
a) Short workings should be recouped within first two years of lease
b) Each year’s short workings should be recouped in the subsequent year
c) Short working can be recouped during the life of the lease;
Show how a recoupment right is exercised under each of the
circumstances (a), (b) and (c).

3. X Limited had taken on lease a mine on a royalty of Rs 5 per tonne of iron
ore raised with a minimum rent of Rs 20,000 per year and power to
recoup short workings during the first four years. The production was as
under

Year Production in tones Year Production in tones
2011 1,000 2012 2,400
2013 4,000 2014 9,000

4. SM Ltd rented a premises from Ms. K Nath for a departmental store on the
basis that a rent of Rs.80,000 p.a. will be paid and in addition to this sum
the undermentioned percentage of sales will also be paid subject to a
minimum of Rs.50,000 p.a. – the excess amount over that due on a year’s
sales being recoverable during the next two years. 1% of sales upto Rs.50
lakh, ¾ % of sales between 50lakh and 1 crore, and ½ % of sales above 1
crore. The sales (in lakhs) are as under:

1997: 30 1998: 45 1999: 65
2000: 80 2001: 95 2002: 120

Give ledger accounts in the books of the lessee.

5. Hannah obtained a lease of a colliery from James for a royalty of Rs.2 per
tonne raised subject to a minimum rent of Rs.9000 p.a. with a right to
 recoup short workings over the first four years of the lease. From the
following details, in the books of Hannah, prepare a) Royalties Account b)
Short Workings Account c) James Account

Year 2002 2003 2004 2005 2006 2007
Sales (tonnes) 1500 2300 5000 6000 3600 4500

Closing Stock 500 400 700 800 600 500

(tonnes) (2 months (2 months
strike) lockout)
In the event of a strike, the minimum rent would be taken pro rata on the
basis of actual period of working but in the event of lock out, the lessee
would enjoy a concession in respect of minimum rent for 40% of the
period of lockout.
(Hint: Production = Sales + Closing Stock – Opening Stock)

6. Ms Kumar leased a mine with effect form 1st January 2002 for a period of
thirty years. Royalties are payable at Rs. 0.60 per tonne extracted subject
to a dead rent of Rs. 12000 p.a., with a right to recoup short workings
within a period of 3 years immediately succeeding the year in which the
short workings arise. It was further agreed that the dead rent would be
reduced proportionately in case of either strike or lockouts in any year.

Year 2006 2007 2008 2009 2010 2011
Sales 23000 18700 15400 19000 20600 22600
(tonnes) (3 month
strike)

On 1st January 2006, there was a balance of Rs. 4900 in the short
workings account of which Rs. 2200 arose in 2003 and the balance in
2004. In the books of Ms. Kumar prepare royalty account, short workings
account and the lessor account for above 6 years.

7. Oily Oil Co, obtained a piece of land for 30 years for the extraction of
crude oil in 2010 on the following terms:
• Royalties payable: Rs. 0.50 per tonne extracted
• Minimum rent Rs. 24000
• Each year’s excess is recoupable during the subsequent two years
• Minimum rent to be reduced by 25% in any year in which a strike
or accident occurs

The production was as follows: 2010 – 28000, 2011 – 36000, 2012 –
60000 and 2013 – 44,000. There was a three-month strike that occurred in 2013.
Open Minimum Rent Account, Landlord’s Account and Short Workings Account
in the books of Oily Oil Co.