Question

R wrote a book on Accountancy and got it published with Krishna Publishers on the terms that
royalty will be paid at Rs 5 per copy sold, subject to minimum rest of Rs. 15000 p., with a right
to recoup shortworkings over the first three years of the royalty agreement. The details are as
Year
No. of copies No. of copies of
printed closing stock
2005
2000
100
2006
3000
200
2007
4000
400
2008
5000
300
Prepare minimum rent Als, royalties Ale, shortworkings A c and R's A/c in the books of Krishna
Publishers​

Answer 1

Explanation:

Minimum Rent:

Usually, the royalty agreements contain a clause for the payment of a fixed minimum amount to the lessor every year as royalty—irrespective of the actual benefit to be taken by the lessee—simply in order to assure the lessor of a certain regular income from his property.

This minimum amount is known as “Minimum Rent, ‘Dead Rent’, etc. It is to be remembered that the Minimum Rent may or may not vary in different years. The Minimum Rent or actual royalty, whichever is higher, is to be paid to the lessor. For example, X leased a mine from Y at a Minimum Rent of Rs. 12,000 p.a. merging a royalty of Rs. 2 per ton of coal raised.

Now, if the quantity raised for the 1st year amounted to 4,000 tons and that of 2nd year 8,000 tons, in that case, X will have to pay Rs. 12,000 for the 1st year to Y, i.e., the Minimum Rent [since actual royalty (8,000 = 4,000 × 2) is less than Minimum Rent]. On the contrary, he will have to pay Rs. 16,000 to Y for the 2nd year [since actual royalty (16,000 = 8,000 × 2) is more than the Minimum Rent.].