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How to calculate Royalty with examples?


Example: Suppose a company has taken a lease started from April 1st 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 1st year, Rs.1, 200 for 2nd year, Rs. 1, 800 for 3rd year, Rs. 2, 500 and Rs. 3, 000 for 5th 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 31st march but payment made on 31st December. The financial year started from 1st April 2006 and ended on 31st March 2006. The short working of royalty is recouped after first four years of commencement of productions. The leased period started from 1st 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


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