Page 172 - Accountancy_F5

Chapter
Royalties accounting
Chapter six: Royalties accounting
Six

FOR ONLINE READING ONLY

Introduction

The production of certain goods often requires a legal agreement with the resource
LANGUAGE EDITING
owner, who may hold rights to patents, copyrights, or mines. In this chapter, you will
LANGUAGE EDITING
learn meaning, types and terminologies of branch accounts. Also, you will learn books
of lessor and lessee when the contract provides minimum rent and when it does not
provide minimum rent. The competencies developed will enable you to demonstrate
the understanding of the concepts and principles applied in the accounting of royalties
and have ability to prepare and maintain accounting records related to royalties.

Another example is the payment made by the
A business without royalties
oil and gas extractors to landowners for the
permission to extract natural resources from
Concept of royalties the landowners’ covered property. There

Royalty is a payment made by a person must be a contractual royalty agreement
(lessee) for the right to use an asset between the licensor and licensee before the
belonging to another person (lessor). It is a latter can start using the property. Royalty
legally binding payment made to a person or payment can be a fixed fee or a percentage
to a firm for the ongoing use of their assets. of the gross or net revenue obtained by the
Royalty is a very common payment for lessee on using the licenced property.
businesses like mining (for rights to extract The royalty agreement
minerals); publishers (for rights to publish
and/or sell books); and manufacturers (for A royalty agreement is a legal contract
patent right to manufacture a patented between a lessor and a lessee. The agreement
product). A payment received by a musician grants the right to the licensee to use the
when his/her songs are played on a radio lessor’s licensed property in exchange for
or television station, applied in movies, the agreed royalty payments. This contract
performed at concerts by other people, or will indicate the royalty terms and the
consumed through streaming services is amount of the payment to be made, by
another example of royalty. the lessee to the owner of the property.

Student’s Book Form Five
159

23/06/2024 17:35
ACCOUNTANCY_DUMMY_23 JUNE.indd 159 23/06/2024 17:35
ACCOUNTANCY_DUMMY_23 JUNE.indd 159