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The Bihar Coal Co. Ltd. holds a lease of coal mines for a period of twelve years, commencing
from 1st April 2002. According to the lease, the company is to pay $7.50 as royalty per ton
with a minimum rent of $150,000 per year. Short workings can, however, be recovered out
of the royalty in excess of the minimum rent of the next two years only. For the year of a
strike the minimum rent is to be reduced to 60%.
The output in tons for the 6 years ending 31st March, 2008 is as under:

Write up the necessary Ledger Accounts in the books of Bengal Coal Co. Ltd.
Answer
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Illustration 2
SKG Oil. Ltd. holds a lease of Oil field for a period of twenty years, commencing from 1st
April 2002. According to the lease, the company is to pay $20.00 as royalty per ton with a
minimum rent of $250,000 per year. Short workings can, however, be recovered out of the
royalty in excess of the minimum rent of the 1st four years from the date of operation. The
output in tons for the 6 years ending 31st March, 2008 is as under:

Write up the necessary Ledger Accounts in the books of SKG Oil Ltd.
Answer
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The Bihar Coal Co. Ltd. holds a lease of coal mines for a period of twelve years, commencing
from 1st April 2002. According to the lease, the company is to pay $7.50 as royalty per ton
with a minimum rent of $150,000 per year. Short workings can, however, be recovered out
of the royalty in excess of the minimum rent of the next two years only. For the year of a
strike the minimum rent is to be reduced to 60%.
The output in tons for the 6 years ending 31st March, 2008 is as under:

Write up the necessary Ledger Accounts in the books of the Landlord


Answer
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On 1.4.2003 Mayami got a mining lease and from that date a part of the mine was sub-
leased to Pathan. The terms of payment and the production of 5 years are as below.

In case of strike, royalty earned will discharge all liabilities for the year only.
Show ledger accounts in the books of Mayami.
Answer
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A Company leased a colliery on 1st January 2007 at a minimum rent of 20,000 and royalty
of $1.5 per ton with power to recoup short workings over the first four years
The output for the first four years is as below:

Pass the necessary journal entries for each of the four years in the book of the company
Answer
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Tee Engineering Limited took a lease of a quarry at a royalty of $1 250 per ton of granite.
The minimum rent was $750,000 per annum with the right to re-coup short workings out of
subsequent surplus royalties within a period of five years.
The following information shows the amount of granite raised in the first five (5) years of
operation:-

You are required to prepare in the tenant's books:


i) Royalty Account (5 marks)
ii) Landlord/Owner's Account (5 marks)
iii) Minimum Rent Account (5 marks)
iv) Short Workings Account (5 marks)
Answer
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From the information given below, prepare the necessary accounts in the books of Black
Diamond Limited.
• Company leased a colliery on 01-01-2010 at a minimum rent of $ 75,000.
• Royalty Rate@ $1 per ton.
• Right of recouping of short workings is restricted to first 3 years.
• Output for the first four years of the lease was 40 000, 65 000, 105 000 and 90 000
tons respectively.
Answer
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S.K. Collieries Co. Ltd. took from Bihari Bros, a lease of a coal field for a period of 25 years
from 1st April, 2007 on a royalty of $25 per tonne of coal extracted, with a Dead Rent of
$2,20,000 a year, and with power to recoup short-workings during the first five years of the
lease. The company closes its books of account on 31st March every year.
The output in the first five years of the lease was as follows:

(a) Pass journal entries for all the transactions relating to royalties for the five years in the
books of S.K. Collieries C. Ltd.
(b) Suppose, output for the year ended 31st March, 2012 was 14,000 tonnes only. What
would be the journal entries for the year 2011-2012 then?
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A colliery worked coal under a lease which provided for the payment of royalties at $5 per
tonne with a minimum rent of $170,000 per annum. Each year’s excess of minimum rent
over the actual royalties was recoverable during the subsequent three years.
The lease, however, stipulated that if in any year the normal rent was not attained due to
strike or accident, the minimum rent was to be regarded as having been reduced
proportionately having regard to the length of the stoppage.
The output was as follows:

During the year 2010-11 there was a stoppage due to strike lasting three months.
Give the necessary ledger accounts in the books of the colliery for each of the above years.
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Exe Ltd. of Mumbai obtained on 1st April, 2008 the use of a patent from Zed Ltd. of New
York on the terms mentioned below:
(i) A royalty of 1% on sales subject to a minimum of $ 300 per annum will be payable in U.S.
dollars; all payments to be free of the Indian income-tax.
(ii) The royalty will be payable on 15th April following the year to which it related.
(iii) Exe Ltd. will have the right of recouping any short-workings in the first three years of
the agreement.
Sales affected by Exe Ltd. were as follows:

The income-tax rate concerned is 25%. The value of one U.S. dollar was $32 till September
5, 2009 and $50 thereafter. Prepare accounts in the ledger of Exe Ltd. for the first four
years of the contract.
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On 1st April, 2008 Bihar Collieries Co. took on lease a mine from Seth. Under the contract,
royalty was payable @ $10 per tonne of coal extracted with an annual minimum rent of
$100,000. Short-workings, if any, were recoverable only during the first three years of the
contract.
The output for the first four years is noted below:
For the year ended 31st March, 2009 – 6,000 tonnes
For the year ended 31st March, 2010 – 10,500 tonnes
For the year ended 31st March, 2011 – 13,000 tonnes
For the year ended 31st March, 2012 – 20,000 tonnes
Pass Journal entries in the books of the landlord for all the four years.
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A.B. Co. Ltd. hold a lease of minerals from R. S. for a period of 40 years from 1st October,
2009. Under this lease, royalty is payable @ $1 a tonne merging in a minimum rent of
$20,000 a year, payable half yearly on 30th September and 31st March.
They granted a sub-lease for 20 years form 1st April, 2010 to XY. Co. Ltd. of one-half of the
area for a royalty of $1.50 a tonne merging in a minimum rent of $15,000 per half year,
payable half yearly on 31st March and 30th September.
A.B. Co. Ltd. are entitled under the lease form R.S. to recoup short-workings out of excess
workings throughout the term of the lease, but the sub-lease allows X. Y. Co. Ltd. to recoup
short-workings only out of excess workings in any of the three half years immediately
following that in which the short-workings accrue.
Minerals are worked as follows:

Show the necessary accounts in the books of A.B.Co Ltd. The books are balanced each year
on 31 March.
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