explain short working recoverable amount
Answers
Explanation:
Recoupment of Short-working:
Usually, in a royalty agreement, a further provision is included about the recoupment of short-working, i.e., the lessor allows the lessee the right to carry forward and set off the short-working against the excess or surplus of royalties over the Minimum Rent in the subsequent years.
Answer:
The excess of Minimum Rent over actual royalty is known as short-working. Therefore, question of short-working will only arise when the actual royalty is less than the Minimum Rent. Short-workings which are recoupable will appear in the assets side of the Balance Sheet as a current asset.
In the above example, short-working for the 1st year will be Rs. 4,000 [i.e., Rs. 12,000 – Rs. 8,000 (4,000 × Rs. 2)], since actual royalty is less than the Minimum Rent. But, in the 2nd year, there will be no such short-working since actual royalty is more than the Minimum Rent.
Recoupment of Short-working:
Usually, in a royalty agreement, a further provision is included about the recoupment of short-working, i.e., the lessor allows the lessee the right to carry forward and set off the short-working against the excess or surplus of royalties over the Minimum Rent in the subsequent years