Royalty Accounts Questions And Answers Pdf
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- Mcq With Answers
- Financial Accounting - Royalty Accounts
- Study Note 2.1 Page (60-79)
- Royalties Accounting: Meaning, Accounting Treatment & Examples
Mcq With Answers
The term 'Royalty' is used to denote the periodic payment made by one person called lessee to another person called lessor for using the right by the lessee vested in the lessor.
For example, if X is the owner of coal mine, and instead of extracting the coal himself, he concedes this right to Y in return for amount calculated on the basis of coal extracted from the mine, such a payment is called 'Royalty'. Royalties are usually payable in the following cases: a b c For the extraction of oil, coal, and minerals from the ground To an author for sale of his books.
To holder of patent rights for the use of his patent by other manufacturer. Nature of Royalty Account:- Royalty Account is nominal in the nature. So it is debited in the books of party paying it and credited in the books of the party receiving it. As the name suggests, this is the minimum amount of rent which the lessee is required to pay to the lessor whether he has derived any benefit or not out of the right vested to him by the lessor.
Thus, if in any year the actual royalty is less than the minimum rent, the landlord will claim the minimum rent. But in the years when actual royalty exceeds Minimum Rent, the landlord will claim the actual royalty. Moreover, Minimum Rent may be the same for each year or may vary for different years according to the terms of agreement. For example. If X has taken a lease of mine with minimum rent of Rs. Thus, Minimum Rent will assure a guaranteed income per year to lessor.
Therefore short- working will only arise when the Actual royalty is less than the Minimum Rent. In the above example as given in Minimum Rent. Short-working for the year will be Rs i.
Fixed Right 2. Floating Right. The right is said to be fixed. Then the right is said to be floating. For example, if lessor promises to compensate the short-working of any year in coming 2 years. Then shortworking of 3rd year can be recouped in 4th and 5th year and short-working of 8th year in 9th and 10th year.
In such a case, actual lessee assumes the double position in the whole scenario. He is lessee for actual owner but landlord for the sub-lessee. So, in sub-lease, actual lessee recovers the royalty from sub-lessee on the rate decided between him and sub-lessee and transfer the amount along with his own payment for Royalty to actual owner as per agreement between him and landlord.
Give Journal Entries in the books of the lessee and lessor Landlord in the following cases. Nature of Assets It is the consideration payable for the use of only tangible assets as building, machinery etc. Basis of Payment It is mostly payable on the basis of time as weekly, monthly or yearly. Fixed or Variable The amount of rent is generally fixed with regard to time. Minimum Rent There is no concept of minimum rent.
Parties The parties are known as tenant and landlord. Royalty It is the consideration payable for the ue of special right for both tangible and intangible assets. It is paid on the basis of production, yield or sale. The amount of royalty is variable and is calculated in accordance with production or sales. It generally contains a clause in the agreement to pay minimum rent. Generally minimum rent is fixed taking into consideration the minimum expected output under normal conditions.
Whenever there is stoppage of work due to abnormal reasons as strike, lockout, accident or for any other reason, the minimum rent is required to the adjusted as provided for in the agreement. Such agreement may have the following arrangements: a Non-application of the condition of minimum rent:- In such a case the clause of minimum rent is not applied. Actual royalties will discharge all rent obligations. There will not be any short workings or surplus.
The minimum rent can be reduced by a fixed percentage or by a fixed amount is the year of stoppage. If the is a provisions in the income tax law that the payer of royalty should deduct tax at source at the prescribed rate and tax so deducted shall be deposited to the credit of the Central Government within a specified time.
The landlord will get the amount of royalty or minimum rent after adjustment of tax. Answer 1: I. Share holders II. Provisions III. Legal expenses IV. Model Answer Corporate Financial Accounting As Members voluntary winding-up can be resorted to by solvent companies and thus requires. Chapter 9 Plant Assets Plant Assets are also called fixed assets; property, plant and equipment; plant and equipment; long-term assets; operational assets; and long-lived assets.
They are characterized. International Accounting Standard 17 Leases Objective 1 The objective of this Standard is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosure to apply in relation. Income from property is taxable as a separate block of income on gross rental receipts.
In Finance Act words section Mineral rights Australia UK Miner has right to enter and explore public lands and acquire title to minerals by staking a claim free entry system. Ownership of most minerals vested in the State General. Leasing in Brazil History and background The first goods subject to lease agreement in Brazil were in fact typewriters.
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This Sublease, dated, for reference purposes only, 20 is made by and between herein called Sublessor and herein called Sublessee. Sublessor hereby. Business transactions Discounts Sales tax Storage of information What is a business?
Which of the following provide frame work and accounting policies so that the financial statements of different enterprises become comparable? Depletion Overview Federal Statute Economic Interest Cost Depletion This is only a sample intended to assist you in the leasing processes. It is not always clear. You have also learnt the format of these statements and the.
Types classifications of s: 1 Current s - short lived assets used in the operations of a business 2 Plant s - long lived tangible assets used in the operations of a business 3 Long Term Investment. Chapter 2 Balance sheets - what a company owns and what it owes SharePad is packed full of useful financial data.
This data holds the key to understanding the financial health and value of any company. Before signing a commercial or retail lease A lease is a contract that you probably can t end early Entering into a lease is. International Accounting Standard 38 Intangible Assets Objective 1 The objective of this Standard is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in.
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Financial Accounting - Royalty Accounts
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Study Note 2.1 Page (60-79)
Royalty is payable by a user to the owner of the property or something on which an owner has some special rights. A royalty agreement is prepared between the owner and the user of such property or rights. If payment is made to purchase the right or property that will be treated as capital expenditure instead of a Royalty. Payment made by the lessee on account of a royalty is normal business expenditure and will be debited to the Royalty account.
By Sathish AR. Royalty is a consideration received by business entities or individuals who sell their creations to a third party for use. Typically, royalty is considered to be synonymous with rent, however its concept and application varies completely. However, royalty is different from the rent paid by the user.
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Royalties Accounting: Meaning, Accounting Treatment & Examples
In this article we will discuss about the top five accounting problems on Royalties with their relevant solutions. Collieries Co. The company closes its books of account on 31st March every year. Collieries C. What would be the journal entries for the year then? Before proceeding to pass journal entries, preparation of the following chart minimises the chances of mistakes in the amounts of the journal entries:.
Personal ledger b. Debtors ledger d. Creditors ledger 2. Bought ledger account is opened in A. Creditors ledger B.
The term 'Royalty' is used to denote the periodic payment made by one person called lessee to another person called lessor for using the right by the lessee vested in the lessor. For example, if X is the owner of coal mine, and instead of extracting the coal himself, he concedes this right to Y in return for amount calculated on the basis of coal extracted from the mine, such a payment is called 'Royalty'. Royalties are usually payable in the following cases: a b c For the extraction of oil, coal, and minerals from the ground To an author for sale of his books. To holder of patent rights for the use of his patent by other manufacturer. Nature of Royalty Account:- Royalty Account is nominal in the nature. So it is debited in the books of party paying it and credited in the books of the party receiving it.