Writing off Short-workings in Subsequent Two Years
A leased a colliery for 20 years. The dead rent was * 7,500 a year, merging into a Royalty of 40 Paise per ton
of coal raised, with the right to recoup short-workings out of excess of Royalties of two subsequent years from
the period in which Short-workings arose. The quantities raised were: 1st year 10,000 ton; 2nd year 15,000
ton: 3rd year 25,000 ton; 4th year 15,000 ton and 5th year 10,000 ton. Give Ledger Accounts necessary for each
of the five years in the books of lessee.
Ans. Transfer to P & L Alc 3rd v. 1.000 and 1.500 in 4th yr.
Answers
During strike period minimum rent would be reduced proportionately i.e., Rs. 15,000 x 8/12 = Rs. 10,000 (as 4 months were the stoppage period) so, royalties in excess of minimum rent could be recouped i.e., Rs. 1,000 (Rs. 11,000 – Rs. 10,000) out of the short-workings of Rs. 2,000 in 2009. As such balance of un-recoupable part i.e., Rs. 1,000 should be credited to P & L A/c.
Under the circumstances, during the period of Strike or Lock-out, there will neither be short-working nor will there be any recoupment. For example, the contract stipulates that the Minimum Rent is Rs. 12,000 per year. But, during the period of strike, actual royalty earned Rs. 8,000. Hence, landlord will get only Rs. 8,000. As such, there will not be any short-working of Rs. 4,000 (Rs. 12,000 – Rs. 8,000) which may be considered in other years.
Under the circumstances, the amount of Minimum rent will be reduced proportionately having regard to the length of stoppage. For example, the Minimum Rent is. 12,000 per year. Strike period is 3 months, as such, the amount of Minimum Rent will be Rs. 9,000 (i.e., Rs. 12,000 × 9/12).
P Ltd. took a mine on lease from Landlord at a given rate of royalty with a Minimum Rent of Rs. 12,000 per year. Each year’s excess of Minimum Rent over royalties is recoverable out of the royalties for the next two years. In the event of Strike, the Minimum Rent was to be reduced proportionately, having regard to the length of the stoppage. But in the case of Lock Out, it was provided that the actual royalties earned for the year would discharge the full rental obligation for
1. In case of Strike, the Minimum Rent should be reduced proportionately i.e., Rs. 12,000 x Rs. 9,000.
Minimum Rent for the 4th year will be Rs. 9,000 and, as actual royalty is Rs. 10,000, so Rs. 1,000 is recouped.
2. In case of lockout the actual royalties will discharge all rental obligation i.e., landlord will get only Rs. 8,000 for the 5th year although the Minimum Rent is Rs. 12,000.
Mr. Raman, a scientist, owned a patent for the manufacture of electric blanket. In 2006 he allowed Hindustan Manufacturing Ltd. the use of the patent on the terms that he would receive a royalty of Rs. 10 per blanket manufactured subject to a Minimum Rent of Rs. 12,000 in 2006, Rs. 16,000 in 2007, and thereafter Rs. 30,000 every year. Any short-workins is recoverable out of the royalties of the two years subsequent to the year in which short-workings may
Explanation:
answer is this