The Coal India Ltd. Are lessees of a mine on a
royalty of 50 paise per tonne of coal raised with a
dead rent of Rs.40,000 p.a. with power to recoup
shortworkings during the first five years of the
lease. The output for the first five years was as
follows.
I year 10,000 tonnes
II year 48,000 tonnes
III year 80,000 tonnes IV year 1, 20,000 tonnes V year 1, 20,000 tonnes
Write up the shortworkings A/c in the books of the
Coal India Ltd.
Answers
Answer:
4Thus, if:
(1) B leases a mine for a royalty of Rs 10 per tonne raised subject to a minimum rent of Rs 1, 00,000;
(2) B has the right to recover the excess amount paid in later years if actual royalties exceed the minimum rent; and
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(3) Actual output in the year ended 31st March, 2010, is 6,000 tonnes, in the year ended 31st March, 2011, 11,000 tonnes and in the year ended 31st March, 2012, 15,000 tonnes.
B will pay Rs 1,00,000 for the year 2009-10 (Rs 40,000 being short workings); he will pay Rs 1,00,000 for the year 2010-11 (deducting Rs 10,000 out of Rs 1,10,000 royalties for the year) and he will pay Rs 1,20,000 for the year 2011-2012 (deducting Rs 30,000, the balance of the short workings from Rs 1,50,000, royalties due for the year).
The contract usually mentions the period after which short workings will not be recoverable. The period may be the first four or five years of the lease or each year’s short workings may be allowed to be recovered out of the royalties of the subsequent or following two or three years.
The period during which recovery is allowed should be carefully noted so that any amount remaining unrecovered at the end of the period is written off. As long as short workings are recoverable and are expected to be recovered on the basis of expected output in future, they are an asset and should be shown as and in the balance sheet.
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