Learning Materials For Accounting, Management , Finance And Economics.

Monday, October 10, 2011

Accounting Treatment Of Royalty In The Books Of Lessee

Accounting Entries In The Book Of Lessee:

A. When the royalty is less than minimum rent:
Without maintaining minimum rent:

1. For minimum rent payable:
Royalties A/C.....................Dr.
Shortworking A/C.............Dr.
To landlord A/C

2. For minimum rent paid:
Landlord A/C.....................Dr.
To bank A/C

3. For royalties transferred to profit and loss account:
Profit and loss A/C............Dr.
To Royalties A/C

With maintaining minimum rent:

1. For royalties and shortworking raised:
Royalties A/C........................Dr.
To Shortworking A/C...........Dr.
To Royalties

2. For minimum rent payable:
Minimum rent A/C.............Dr.
To landlord A/C

3. For amount paid to landlord:
Landlord A/C......................Dr.
To bank A/C

4. For royalties transferred to profit and loss account:
Profit and loss A/C.............Dr.
To royalties A/C

B. When Royalty Is More Than Minimum Rent:

1. For the actual royalties:
Royalties A/C...................Dr.
To landlord A/C

2. For the amount paid and shortworking recouped:
Landlord A/C.................Dr.
To bank A/C
To Shortworking A/C

3. For transferring royalties and unrecouped shortworking:
Profit and loss A/C............Dr.
To royalties A/C
To Shortworking A/C

C. When Royalty Is Equal To The Minimum Rent:

1. For royalties due from lessee:
Lessee's A/C.................Dr.
To royalty A/C

2. For amount of royalty received:
Bank A/C.....................Dr.
To lessee's A/C

3. For royalties transferred:
Royalties A/C............Dr.
To profit and loss A/C