16-11-2012, 04:27 PM
Royalty Account
Royalty Account.ppt (Size: 346 KB / Downloads: 305)
The words ‘Royalty’ means ‘payment made to state’. In olden days, land with minerals was owned by the state which was transferred on the basis of some consideration, this consideration was known as Royalty.
A payment made for the use of property, especially a patent, copyrighted work, franchise, or natural resource. The amount is usually a percentage of revenues obtained through its use.
Difference Between Rent and Royalty
Payable :- Royalty is payable on the basis of production or amount of sales.Rent is payable on the basis of time as per day, for week, for month etc.
Types of Properties :- Royalty is paid for the use of tangible properties such as land as well as intangible properties such as patent, trademark etc. where as Rent is paid only use of tangible property
Terminology
Actual Royalty :-
this is the amount which is pre-determined on the basis of actual sales / production. It is the income of lessor or landlord and expenses of the lessee.
Less work or not work due to strike
When work is less in any year due to strike, following type of agreement may take place between the lessee and the landlord
Actual Royalties earned for the year will discharged all rental obligation in the year of strike. Actual Royalties will be treated as minimum rent and there will neither be any short working nor excess in that year
The minimum rent is to be recharged as having been reduced proportionately having regard to the length of the stoppage of work due to strike
Practical Question
Course manual Page No. 47 “ The Assam coal company “
Course manual Page No. 48 “ The Binnie colliery company”, “Mohan took”, “New Colliery Company”
Capitalized and Revenue Receipts
Receipts refer to the actual amounts of cash received. They can be either of capital nature or revenue nature.
Capital receipts include the following:
Capital brought in by the proprietor at the commencement and any additions made subsequently.
Money borrowed from partners, bankers, private individuals etc.
Money received by the sale of fixed assets.
Money received on account of capital profit.
Capital and Revenue Payments:
Capital payment- it is an amount paid on account of some capital expenditure
Revenue payment – it is an amount actually paid on account of some revenue expenditure. Expenditure is the full amount incurred whether paid or not, whilst payments refer to the amount actually paid.
Example:
If a building is purchased for Rs. 20,000 from X and Rs. 10,000 is paid in cash and the remaining sum to be paid after six months; Rs. 20,000 is capital expenditure, but Rs. 10,000 is only capital payment. Similarly if goods are purchased from X for 30,000 and Rs. 15,000 is paid in cash; Rs. 30,000 is revenue expenditure but only Rs. 15,000 is revenue payment.
Capital and Revenue Profits:
Capital profit means a profit made on the sale of a fixed asset or profit earned on raising monies for the business. For example a building purchased for Rs. 20,000 is sold for Rs. 25,000 the profit Rs. 5,000 thus made is a capital profit.
Revenue profit on the other hand is a profit made by the business e.g., profit on the sale of goods, income from investments, commission earned etc.
Capital and Revenue Losses:
Capital loss means a loss made on the sale of a fixed asset or a loss incurred in connection with the raising of money for business. Capital loss may be shown as an asset in the balance sheet. But as this asset is a fictitious nature, it would advisable to write off it.
Revenue loss, on the other hand, is the loss incurred in trading operations such as loss on the sale of goods. Revenue losses are charged to profit and loss account of the year in which they occur.