Question

A company leased a colliery on 1-1-92 at a minimum rent of Rs.20,000 merging
into a royalty of Rs. 1.50 per tonne with power to recoup shortworkings over the
first four years of the lease. The output of the colliery for the first four years was
9.000 tonnes, 12,000 tonnes, 16,000 tonnes and 20,000 tonnes respectively Give
journal entries and ledger accounts for four years in the books of lessee and
lassor​

Answer 1

Accounting Entries in the Books of Lessor : The Lessor is entitled to receive Royalty from the Lessee. Here royalty would be an income to the Lessor. The entries would therefore be the reverse of those made in the Lessee’s books. However, it may be noted that in place of Short working Account, the Lessor maintains the Royalty Reserve or Royalty Suspense Account. The following are the accounting entries in the books of lessor: (1) When the Royalties are Less than Minimum Rent and Short Workings are Recoverable out of Future Years: (2) When the Royalties Earned Exceed the Minimum Rent and Short Workings are Recovered

The following are the accounting entries passed in the books of lessee: (1) When the Royalty is Less than Minimum Rent and the Minimum Rent Account is not Maintained: (2) When the Royalty is Less than Minimum Rent and the Minimum Rent Account is Maintained: (3) When Royalties are More than Minimum Rent (4) When Short Working cannot be Recouped in Future: Illustration

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