How to calculate Royalty with examples?

Example: Suppose a company has taken a lease started from April 1^st 2008 and has a right to recoup short-working in next year only. The minimum rent is Rs.6000 per year. Find out how the  short-workings recoup by lessee after paying Rs.1.50 per ton as royalty?

Year	Output in ton
2008	5, 000
2009	10, 000
2010	24, 560
2011	21,000

Solution:

Year	Output in ton	Minimum rent	Royalty @1.50 (Output*1.50)	Short-working	Surplus
2008	5, 000	12, 000	7, 500	4, 500	-----
2009	10, 000	12, 000	15, 000	-----	3, 000
2010	24, 000	12, 000	36, 840	-----	24, 840
2011	21,000	12, 000	31, 500	-----	19,500

Year	Short-working recouped	Short-working un-recouped	Un-recouped   short-working transferred to Profit&Loss a/c	Amount paid to Lessor
2008				12, 000
2009	3, 000	1, 500	1, 500	12, 000
2010				36, 840
2011				31, 500

Example: Suppose Lessor charge Rs.1.20 per ton on output raised from leased asset and the minimum rent is Rs.8000.Find out how the lessee recoup his short working if he has right to use only 40% of surplus to recoup and in first 4 year?

Year	Output in ton
2003	2, 000
2004	6, 000
2005	11, 500
2006	12,000

Solution:

Year	Output in ton	Minimum rent	Royalty 1.20 (Output*1.20)	Short-working	Surplus
2003	2, 000	8, 000	2, 400	5, 600
2004	6, 000	8, 000	7, 200	800
2005	11, 500	8, 000	13, 800	-----	5, 800
2006	12,000	8, 000	14, 400	-----	6, 400

Year	Short-working recouped (40% surplus used)	Short-working un-recouped	Un-recouped   short-working transferred to Profit&Loss a/c	Amount paid to Lessor
2003				8, 000
2004				8, 000
2005	2, 320			11, 480
2006	2, 560	1, 520	1, 520	11, 840

Example: Company X took a lease from Y on a royalty of Rs. 1.10 per ton of output raised and the half yearly minimum rent of 3 years  are  Rs.4, 900, Rs.5, 600, Rs.7, 500, Rs.7, 800, Rs.8, 000, Rs.10, 000 respectively. Find out how the lessee recoup his short working if he has right to recoup in subsequent 2 years only. 

Year	Output in ton
31st mar 2006	6, 900
31st dec 2006	8, 100
31st mar 2007	8, 800
31st dec 2007	10, 000
31st mar 2008	10, 450
31st dec 2008	11, 000

Solution:

Year	Output in ton	Minimum rent	Royalty 1.10 (Output*1.10)	Short-working	Surplus
31st mar 2006	5, 900	4, 900	6, 490		1, 590
31st dec 2006	6, 100	5, 600	6, 710		1, 110
31st mar 2007	6, 800	7, 800	7, 480	320	-----
31st dec 2007	9, 000	8, 800	9, 900	-----	1,100
31st mar 2008	10, 450	9, 800	11, 495	-----	1, 695
31st dec 2008	11, 000	10, 000	12, 100	-----	2, 100

Year	Short-working recouped	Short-working un-recouped	Un-recouped short-working transferred to Profit&Loss a/c	Amount paid to Lessor
31st mar 2006				6, 490
31st dec 2006		------	------	6, 710
31st mar 2007	320	------	-------	7, 800
31st dec 2007	2, 560	1, 520	1, 520	9, 580
31st mar 2008				11, 495
31st dec 2008				12, 100

Amount paid to lessor = minimum rent or royalty which ever is higher. If royalty is high then subtract the recoup short working amount with royalty amount .

Sub – Lease: The lessee gives some part of leased asset to other institution or person who acts as a lessee for him and it is known as sub-lease. The main lessor receive royalty on whole leased asset from his lessee including the sub lease. The lessee receives royalty from his lessee for whom he acts as a lessor. In that case the main Lessee prepare two books -

·         As lessee: Royalties a/c, Short-working a/c and landlord a/c

·         As lessor: Royalties Receivable a/c, Royalties reserve a/c and sub-lessee a/c.

Example: A coal company leased a land for a minimum rent of Rs. 900 for 1^st year, Rs.1, 200 for 2^nd year, Rs. 1, 800 for 3^rd year, Rs. 2, 500 and Rs. 3, 000 for 5^th year. The royalty at the rate is Rs. 0.60 per ton of output. The company leased a land for 15 years. The output of 6 years is given below:

Years	Output per ton
1	1, 200
2	1, 800
3	2, 600
4	4, 900
5	5, 700

Find out the short working and surplus with the help of royalty table. The short working recouped whole year of lease.

Solution:

Years	Output per ton	Royalty @ Rs. 0.60 per ton of output	Minimum rent	Short working
1	1, 200	720	900	180
2	1, 800	1, 080	1, 200	120
3	2, 600	1, 560	1, 800	240
4	4, 900	2, 940	2, 500	----
5	5, 700	3, 420	3, 000	----

Surplus	Short working recouped	Un-recouped short working transferred to profit and loss a/c	Payment to landlord
----	-----	-----	900
----	-----	-----	1, 200
----	-----	-----	1, 800
440	440	-----	2, 500
420	100	-----	3, 320

Example: A coal mine company took a land on lease for 25 years on minimum rent of Rs. 12, 000 per year. The royalty is Rs. 3 per ton of output. The royalty is due on 31^st march but payment made on 31^st December. The financial year started from 1^st April 2006 and ended on 31^st March 2006. The short working of royalty is recouped after first four years of commencement of productions. The leased period started from 1^st June 2006 and the outputs of four years are as follows:

Years	Output per ton
1	3, 200
2	4, 800
3	2, 600
4	4, 100

The minimum rent is Rs.10, 000 per year.

Solution:

Years	Output per ton	Royalty @ Rs. 3 per ton of output	Minimum rent	Short working
2006	3, 200	9, 600	10, 000	400
2007	4, 800	14, 400	10, 000	----
2008	2, 600	7, 800	10, 000	2, 200
2009	4, 100	12, 300	10, 000	----

Surplus	Short working recouped	Un-recouped short working transferred to profit and loss a/c	Payment to landlord
----	-----	-----	10, 000
4, 400	400	-----	14, 000
----	-----	-----	10, 000
2, 300	2, 200	-----	10, 100

Example: ABC Mine Company took an 800 arc land on lease for 10 years from Mr. X. Under the lease agreement the royalty paid @ of Rs. 4 per ton and the minimum rent is Rs. 12, 000 per year.  It is also mentioned in the agreement that the royalty paid on half yearly basis. Find out the short working of royalty and surplus of royalty. The excess of minimum rent over royalty is recouped by surplus of royalty (excess of royalty over minimum rent). The short workings of royalty are recouped only in first 3 half yearly years. The output is as follows:

Years	Output per ton
June 2009	3,000
Dec 2009	4, 500
June 2010	2, 500
Dec 2010	5, 100
June 2011	8, 000
Dec 2011	10, 000

Solution:

Years	Output per ton	Royalty @ Rs. 4 per ton of output	Minimum rent	Short working
June 2009	2,800	11, 200	12, 000	800
Dec 2009	4, 500	18, 000	12, 000	----
June 2010	2, 500	10, 000	12, 000	2, 000
Dec 2010	5, 100	20, 400	12, 000	----
June 2011	8, 000	32, 000	12, 000	----
Dec 2011	10, 000	40, 000	12, 000	----

Surplus	Short working recouped	Un-recouped short working transferred to profit and loss a/c	Payment to landlord
----	-----	-----	12, 000
6, 000	800	-----	17, 200
----	----	2, 000	12, 000
8, 400		-----	20, 400
20, 000	-----	-----	32, 000
28, 000	2, 200	-----	40, 000