Define Royalty. Write imaginary accounts in the books of landlord and lessee.
Answers
Explanation:
In terms of accounting, royalty is what a lessee pays to a lessor for the use of any rights, copyrights, franchises or any such asset. It is the system of sharing of revenues between the lessee and the lessor. Let us learn more about the special accounting treatments in royalty accounts.
Explanation:-
In terms of accounting, royalty is what a lessee pays to a lessor for the use of any rights, copyrights, franchises or any such asset. It is the system of sharing of revenues between the lessee and the lessor. Let us learn more about the special accounting treatments in royalty accounts.
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Principles and Practice of Accounting > Royalty Accounts > Accounting Treatment in Books of Lessor
Royalty Accounts
Accounting Treatment in Books of Lessor
A lease is an agreement where a person acquires a right to use an asset for a certain period of time from another person or the owner of the asset in return for a payment. The owner is the Lessor. The user is the Lessee. The amount paid is Royalty.
Accounting Treatment in books of Lessor
Royalty is the sum payable by the lessee to the lessor for the use of rights vested in the lessor. It is a periodic payment. It is generally paid on the basis of output or sale. Royalty is paid for extraction of mines, for use of a patent, for use of technical know-how, to an author for sale of his books, etc.
For the lessor, royalty is ordinary business income. Royalty received on the basis of output is credited to Trading or Manufacturing A/c. Whereas, royalty received on the basis of sales is credited to Profit & Loss A/c.
Minimum Rent is the amount that has to be paid by the lessee to the lessor whether or not he has derived benefit from the asset. Hence, it is also called Dead Rent or Rock Rent.
Lessor may allow the lessee the right to recoupment of short-workings. In this case, the lessor will receive only the minimum rent until the period of recoupment. The entries below are done assuming that the lessor has allowed right of recoupment to the lessee.