406 FINAL-TOUCH PRINCIPLES; OF

FINANCIAL
Royalty Accounts
AC OUNTING
1. Solution:
Short-workings =Minimum Rent- Actual Royalty = 25,000 - 20,000 = 5,000
In the Books of X
Journal Entries
Date Particulars
Dr. ()
1st Year Royalty Alc
Shortworking A/c
Dr.
Dr. 20,000
5,000
Cr.8
To Y's A/c
(Being royalty and shortworkings due)
Y's Ac Dr.
25,000
To Bank Ac 25,000
(Being payment made to landlord)
Profit & Loss Alc Dr.
25,000
20,000
To Royalty Alc
(Being transfer of royalty to profit and loss account) 20,000
In the Books of Y
Journal Entries
Date Particulars
1st Year Dr. (3) Cr. (3)
X's A/c Dr. 25,000
To Royalty Receivable Alc 20,000
To Shortworking Suspense Alc
5,000
(Being royalty due from lessee)
Bank A/c Dr. 25,000
To X's Ac
25,000
(Being payment received from lessee)
Royalty Receivable Alc Dr. 20,000
ToProfit &Loss A/c 20,000
(Being transfer of royalty receivable account to P&L Account)
2. Solution:
ANALYTICAL TABLE
Year Output Royalty Minimum Short- Surplus Short Short- Short Amount
Rent workings workings workings workings Paid to
recouped w/off c/f Landlord
(Tons)
2016-17 10,000 30,000 48,000 18,000 18,000 48,000
2017-18 16,000 48,000 48,000 18,000 48,000
2018-19 20,000 60,000 48,000 12,000 12,000 6,000
48,000

In the Books of Arjun

Journal Entries
Date
Particulars Cr. (3)
2017 Dr. (3)
Royalty Alc Dr. 30,000
March 31 Shortworking Alc Dr. 18,000
ToLandlord A/c 48,000
(Being royalty and shortworkings due)
Landlord Alc 48,000
Dr. 48,000
To Bank Alc
(Being payment made to landlord)
Profit & Loss A/c 30,000 30,000
Dr.
ToRoyalty A/c
(Being transfer of royalty to profit and loss account)
 Self-Assessment Questions 407
Detailed Solutions to
2018 Royalty Alc Dr. 48,000
March 31 To Landlord A/c 48,000
(Being royalty due)
Landlord A/c Dr. 48,000
To Bank Alc 48,000
(Being payment made to landlord)
Profit & Loss A/c Dr. 48,000
To Royalty A/c 48,000
(Being transfer of royalty to profit and loss account)
2019 Royalty Alc Dr. 60,000
March 31 To Landlord A/c 60,000
(Being royalty due)
Landlord A/c Dr. 60,000
To Shortworking Alc 12,000
To Bank A/c 48,000
(Being payment made to landlord after recouping shortworkings)
Profit & Loss A/c Dr. 66,000
To Royalty Alc 60,000
To Shortworking A/c 6,000
(Being royalty and un-recoupable shortworking transferred
to profit and loss account)
3. Solution: ANALYTICAL TABLE
Year Coal RoyaltyMinimum Short- Surplus Short Short- Short Amount
brought Rent workings workings workings workings Paid to
on the 7.50 per recouped w/off c/f Landlord
surface ton
(Tons)
1S 9,000 67,500 4,20,000 3,52,500 3,52,500 4,20,000
36,000 2,70,000 4,20,000 1,50,000 -
1,50,000 4,20,000
3rd 54,000 4,05,000 4,20,000 15,000 -

15,000 4,20,000
4th 76,500 5,73,750 4,20,000 1,53,750 5,73,750
5th 36,000 2,70,000 4,20,000 1,50,000 1,50,000 4,20,000
6th 63,000 4,72,500 4,20,000 52,500 52,500 97,500 4,20,000
4. Solution:
As shortworkings are recovered out of surplus,so the amount of surplus will be same as the amount of
shortworkings recovered i.e. 1,50,000.
Surplus = Actual Royalty - Minimum Rent or

1,50,000 = 3,75,000-Minimum Rent

Minimum Rent = 2,25,000
5. Solution:
100
Let, Selling price
Less: Profit (30% of seling price) 30
70
Total Cost of Production
Less: Processing Cost (20% of selling price) 20
50
Cost of Material (including royalty)
(including royalty)] 10
Less: Royalty [20% of cost of material 40
Cost of Material (excluding70,royalty)
then royalty payable = 10
If Cost of Production isthen royalty payable = 10/70 i.e.
1/7
Production is 1,
If Cost of
Calculation of Cost of Production: Closing Stock Opening Stock
Production = Cost of Sales (i.e. Sales - Proi) + Add:
Cost of Cost of Less: Cost of
Less: Profit Closing Stock Opening Stock
Year Sales
(30% on Sales) Sales
35,000 Production
21,00,000
2001 30,00,000
9,00,000
24,50,000 52,500 35,000
21,35,000
35,00,000
10,50,000 1,75,000 52,500
24,67,500
2002 9,75,000 22,75,000 23,97,500
2003 32,50,000
 FINAL-TOUCH PRINCIPLES OF
408 FINANCIAL
Calculation of Actual Royalty Payable:
Year Cost of Production x 1/7
21,35,000 x 1/7
Royalty
3,05,000
ACCOUNTING
2001
2002 24.67,500 x 1/7 23,52,500
2003 23,97,500 x 1/7 Z3,42,500
6 Solution:
ANALYTICAL TABLE
Year Coal Royalty Minimum Short- Surplus Short- Short- Short
ended raised Rent workings workings workings workings
recouped w/off c/f
Amount
Paid to
(Tons) Landlord
31.3.16 40,000 2,00,000 2,40,000 40,000
31.3.17 45,000 2,25,000 2,40,000 15,000
40,000 2,40,000
55,000 2,40,000
31.3.18 30,000 1,50,000 1,80,000 30,000 85,000 1,80,000
31.3.19 60,000 3,00,000 2,40,000 60,000 60,000 25,000
In the Books of X 2.40,000
Journal Entries
Date Particulars Dr. () Cr. (3)
Dr. 2,00,000
2016 Royalty Alc
Dr. 40,000
March 31 Shortworking Alc
ToY's A/c 2,40,000
Y's A/c Dr. 2,40,000
To Bank A/c 2,40,000
Profit & Loss Ac Dr. 2,00,000
To Royalty A/c 2,00,000
2017 Royalty Alc Dr. 2,25,000
March 31 Shortworking A/c Dr. 15,000
To Y's A/c 2,40,000
Y's A/c Dr. 2,40,000
To Bank Alc 2,40,000
Profit & Loss AC Dr. 2,25,000
2,25,000
To Royalty A/c
Dr. 1,50,000
2018 Royalty Ac 30,000
Shortworking A/c Dr.
March 31 1,80,000
To Y'sAlc 1,80,000
Y's A/c Dr.
1,80,000
To Bank A/c
Dr. 1,50,000
Profit & Loss A/c 1,50,000
To Royalty Alc Dr. 3,00,000
2019 Royalty Alc 3,00,000
March 31 To Y's Alc
Dr. 3,00,000 60,000
Y's A/c
To Shortworking A/c 2,40,000
To Bank A/c 3,25,000
Profit & Loss Ac Dr. 3,00,000
To Royalty A/c 25,000
ToShortworking Ac
7. Solution:
Calculation of No. of Copies Sold: copiessold
No. of copies Add: No. of copies Less: No. of copies No.of
Year of closing stock
printed of opening stock 950
2015 1,000 50 1,450
2016 1,500 50 100 1.900
2017 2,000 100 200 2.450
2018 2,500 200 250
petailedSolutions to
Self-Assessment Questions 409

Year
ended
No. of
copies
Royalty Minimum ANALYTICAL TABLE
Short Surplus Short Short- Short Amount
sold Rent workings workings workings workings Paid to
recouped w/off f Author
2015 950
19,000 30,000 11,000 30,000
2016 1,450 11,000
2017 1,900
29,000 30,000 1,000 12,000 30,000
38,000 30,000
2018 2,450 8,000 8,000 4,000 30,000
49,000
30,000 19,000 49,000
In the Books of Y
Date Minimum Rent Account
2015 To X's Alc
Particulars Date Particulars
30,000 2015 By Royalties A/c 19,000
By Shortworkings Alc 11,000
2016 ToX's A/c 30,000 30,000
30,000 2016 By Royalties A/c 29,000
By Shortworkings Alc 1,000
Point to Note: Minimum Rent Account is 30,000 30,000
rent. Hence, it appears only in the opened only when the actual royalty is less than the
first two years. minimum
Date
Particulars Royalties Account
2015 Date Particulars
To Minimum Rent Alc 19,000 2015 By Profit & Loss Alc 19,000
19,000
2016 ToMinimum Rent Alc 19,000
29,000 2016 By Profit & Loss Alc 29,000
29,000
2017 To X's Ac 29,000
38,000 2017 By Profit & Loss Alc 38,000
38,000
2018 To X's Alc 38,000
49,000 2018 By Profit & Loss Alc 49,000
49,000
49,000
Shortworkings Account
Date Particulars Date Particulars
2015 To Minimum Rent Alc 11,000 2015 By Balance cld 11,000
11,000 11,000
2016 To Balance b/d 11,000
To Minimum Rent A/c 1,000 2016 By Balance cld 12,000
12,000 12,000
2017 To Balance b/d 12,000 2017 By X's Ac 8,000
By Profit & Loss Alc 4,000
12,000 12,000
X's Account
Particulars Date Particulars
Date 30,000 2015
To Bank A/c By Minimum Rent Alc
2015 30,000
30,000 30,000
30,000 2016 By Minimum Rent Alc
2016 To Bank Alc
30,000
30,000
30,000
To Shortworkings Alc 8,000 2017 By Royalties A/c
2017 30,000
38,000
To Bank A/c
38,000
2018 38,000
49,000 By Royalties A/c
2018
To Bank Alc
49,000 49,000
49,000
8. Solution:
410
FINAL-TOUCH PRINCIPLES OF FINANCIAL
Working Notes:
Analysis Table
ACCOUNTING
Year Output Royalty M.R. S.W. Surplus S.W. S.W. S.W.
(Tonnes) () () (3) (3) recouped w/off c/f Paid to
1998 8,000 48,000 84,000 36,000 36,000 Landlord
1999 16,000 96,000 84,000 12,000 12,000 24,000 84,000
2000 13,000 78,000 84,000 6,000 30,000 84.000
2001 17,000 1,02,000 84,000 18,000 18,000 6,000 6,000 84,000
2002 43,800 2,62,800 84,000 1,78,800 6,000 84,000
In the Books of X Ltd. 2,56,800
Royalties Account
Date Particulars Date Particulars
1998 To Y Ltd. 48,000 1998 By Production A/c
1999 To Y Ltd. 96,000 1999 By Production Alc 48,000
2000 To YLtd. 78,000 2000 By Production Ac 96,000
2001 To Y Ltd. 1,02,000 2001 By Production A/c 78,000
2002 To YLtd. 2,62,800 2002 By Production A/c
1,02,000
2,62,800
Date
Shortworking Account
Particulars Date Particulars
1998 To Y Ltd. 36,000 1998 By Balance cld 36,000
36,000
1999 To Balance b/d 36,000 1999 By Y Ltd.
36,000
12,000
By Balance cld 24,000
36,000 36,000
2000 To Balance b/d 24,000
To Y Ltd. 6,000 2000 By Balance cld 30,000
30,000
2001 To Balance b/d 30,000
30,000 2001 By YLtd. 18,000
By Profit & Loss A/c 6,000
By Balance cld 6,000
30,000
2002 To Balance b/d 30,000
6,000 2002 By YLtd. 6,000
6,000
6,000
Y Ltd. ACcount
Date Particulars Date Particulars
1998 To Bank 84,000 1998 By Royalties Alc 48,000
By Shortworkings Alc 36,000
84,000
1999 To Bank 84,000
84,000 1999 By Royalties A/c
To Shortworkings Alc 96,000
12,000
96,000 96,000
2000 To Bank 84,000 2000 By Royalties A/c 78,000
By Shortworkings Alc 6,000
84,000 84,000
2001 To Bank 84,000 2001
To Shortworkings Alc By Royalties A/c 1,02,000
18,000
1,02,000 1,02,000
2002 To Bank 2,56,800 2002
ToShortworkings A/c By Royalties Alc 2,62,800
6,000
2,62,800 2,62,800
DetailedSolutions to 411
Self-Assessment Questions
9. Solution:

Year ANALYTICAL TABLE

Production Royalty Minimum Short Amount
Surplus Short- Subsidy Short- Short
Rent workings workings workings workings Paid to
(Tonnes) recouped w/off clf Landlord
2013-14 2,000 50,000 1,50,000
2014-15 3,000 75,000 1,50,000 1,00,000 1,00,000 1,50,000
2015-16 8,000 2,00,000 1,50,000 75,000 1,75,000 1,50,000
2016-17 9,000 2,25,000 50,000 37,500 31,250 31,250 75,000 1,62,500
2017-18 4,000 1,00,000
1,50,000 75,000 37,500 18,750 18,750 1,87,500
2018-19
1,20,000 20,000
6,000 1,50,000 1,37,500 20,000 1,20,000
12,500 12,500 7,500 1,37,500
In the Books of M Ltd.
Date
Particulars Royalties Account
31.3.14 To K Ltd. Date Particulars
50,000 31.3.14 By Profit & Loss Alc
50,000 50,000
31.3.15 To K Ltd.
75,000 50,000
31.3.15 By Profit &Loss Alc 75,000
31.3.16 To K Ltd. 75,000
75,000
2,00,000 31.3.16 By Profit & Loss Alc
2,00,000 2,00,000
31.3.17 To K Ltd.
2,25,000 2,00,000
31.3.17 By Profit & Loss A/c
2,25,000 2,25,000
31.3.18 To K Ltd. 2,25,000
1,00,000 31.3.18 By Profit & Loss Alc
1,00,000 1,00,000
31.3.19 To K Ltd. 1,00,000
1,50,000 31.3.18 By Profit & Loss Alc
1,50,000 1,50,000
1,50,000
Date Particulars Shortworkings Date
Account
31.3.14 To K Ltd. Particulars
1,00,000 31.3.14 By Balance cld
1,00,000 1,00,000
1.4.14 To Balance b/d 1,00,000
1,00,000
31.3.15 To KLtd. 75,000 31.3.15 By Balance cld
1,75,000 1,75,000
1.4.15 To Balance b/d 1,75,000 31.3.16
1,75,000
By K Ltd. 37,500
By Cash (Subsidy) 31,250
By Profit & Loss Alc 31,250
By Balance cld 75,000
1,75,000 1,75,000
1.4.16 To Balance b/d 75,000 31.3.17 By K Ltd. 37,500
By Cash (Subsidy) 18,750
By Profit &Loss A/c 18,750
75,000 75,000
31.3.18 To K Ltd. 20,000 31.3.18 By Balance c/d 20,000
20,000 20,000
1.4.18 To Balance b/d 20,000 31.3.19By KLtd. 12,500
By Balance c/d 7,500
20,000 20,000
K Ltd. Account
Date Date Particulars
Particulars
31.3.14 To Bank Alc 1,50,000 31.3.14 By Royalties A/c 50,000
By Shortworkings AG 1,00,000
1,50,000 1,50,000
412 FINAL-TOUCH PRINCIPLES OF FINANCIAL

31.3.15 To Bank Alc 1,50,000 31.3.15 By Royalties A/c

ACCOUNTING
By Shortworkings A/c 75,000
1,50,000 75,000
31.3.16 37,500 31.3.16 By Royalties Alc 1,50,000
To Shortworkings Alc
To Bank A/c 1,62,500 2,00,000
2,00,000
31.3.17 37,500 31.3.17 By Royalties Alc 2,00,000
To Shortworkings A/G
To Bank Ac 1,87,500
2,25,000
2,25,000
31.3.18 1,20,000 31.3.18 By Royalties Alc
2,25,000
To Bank A/c
By Shortworkings Alc
1,00,000
20,000
1,20,000 1,20,000
31.3.19 To Shortworkings A/c 12,500 31.3.19 By Royalties A/c 1,50,000
To Bank Alc 1,37,500
1,50,000 1,50,000
10. Solution:
Working Notes:
Analysis of Royalties Payable
Year Output Royalty M.R. S.W. Surplus S.W. S.W. S.W. Paid to
(Tons) () (3 (3) recouped w/off c/f Landlord
2001 18,000 9,000 12,000 3,000 3,000 12,000
2002 19,000 9,500 12,000 2,500 -

5,500 12,000
2003 27,000 13,500 12,000 1,500 1,500 4,000 12,000
2004 25,000 12,500 12,000 500 12,500
Analysis of Royalties Receivable
Year Output Royalty M.R. S.W. Surplus S.W. S.W. S.W. Amount
(Tons) () (3) (3) (3) recouped w/off clf Receivable
2002 3,000 2,250 2,500 250 250 2,500
2003 9,000 6,750 5,000 -

1,750 250 1,500 6,500

2004 10,000 7,500 5,000 -

2,500 7,500
In the Books of Hari
Royalty Payable Account
Date Particulars Date Particulars
31.12.01 To Landlord 9,000 31.12.01 By Profit &Loss Ac 9,000
9,000 9,000
31.12.02 To Landlord 9,500 31.12.02 By Royalty Receivable A/c 1,500
By Profit &Loss Ac 8,000
9,500 9,500
31.12.03 To Landlord 13,500 31.12.03 By Royalty Receivable Alc 4,500
By Profit &Loss A/c 9,000
13,500 13,500
31.12.04 ToLandlord 12,500 31.12.04 By Royalty Receivable Alc 5,000
By Profit &Loss A/c 7,500
12,500 12,500
Shortworkings Account
Date Particulars Date Particulars
31.12.01 To Landlord 3,000 31.12.01 By Balance cld 3,000
3,000 3.000
31.12.02 To Balance b/d 3,000
To Landlord 2,500 31.12.02 5,500
By Balance cld
5,500 5,500
31.12.03 To Balance b/d 5,500 1,500
31.12.03By Landlord 4,000
By Profit &Loss A/c 5,500
5,500
Detailed Solutions to Self-Assessment Questions 413

Landlord Account
Date Particulars Date Particulars
31.12.01 To Bank A/c
12,000 31.12.01 By Royalty Payable Alc 9,000
By Shortworkings Alc 3,000
31.12.02
12,000 12,000
To Bank
12,000 31.12.02By Royalty Payable Alc 9,500
By Shortworkings Alc 2,500
12,000 12,000
31.12.03 To Bank 12,000 31.12.03
To Shortworkings Alc By Royalty Payable Ac 13,500
1,500
13,500 13,500
31.12.04 To Bank Alc
12,50031.12.04 By Royalty Payable Alc 12,500

12,500 12,500
Royalty Receivable Account
Date Particulars Date Particulars
31.12.02 ToRoyalty Payable A/c 1,500 31.12.02 By Ram's Alc 2,250
To Profit & Loss Ac 750
2,250 2,250
31.12.03 To Royalty Payable A/c 4,500 31.12.03 By Ram's A/c 6,750
To Profit & Loss A/c 2,250
6,750 6,750
31.12.04 To Royalty Payable Alc 5,000 31.12.04 By Ram's Alc 7,500
To Profit & Loss A/c 2,500
7,500 7,500
Shortworkings Suspense Account
Date Particulars Date Particulars
31.12.02 To Balance c/d 250 31.12.02 By Ram's Alc 250
To Ram's A/c 250 31.12.03 By Balance b/d 250
31.12.03
Ram's Account
Particulars Date Particulars
Date
31.12.02 To Royalty Receivable Alc 2,250 31.12.02 By Bank Alc 2,500
To Shortworkings suspense 250
2,500 2,500
6.750 31.12.03 By Bank A/c 6,500
31.12.03 To Royalty Receivable A/c By Shortworkings suspense 250
6,750 6,750
7.500 31.12.04 By Bank Alc 7,500
A/c
31.12.04 To Royalty Receivable 7,500 7,500