Page 178 - Accountancy_F5

Solution 6.2
The above table shows that in the years where actual royalty was less than the minimum
rent, the royalty paid was equal to the minimum rent and the difference being recognised
as short workings. The lessee recouped short workings amounted to TZS 800,000 in
the third year, and therefore, the remaining TZS 1,200,000 will be transferred to the
statement of profit or loss of the lessee as expenses, while the same will be treated as
FOR ONLINE READING ONLY
income in the statement of profit or loss of the lessor.

Example 6.3
LANGUAGE EDITING
Mkwakwani Drilling Group (MDG) Ltd. granted a mining lease to Pangani Ltd., on
LANGUAGE EDITING
the basis that Pangani Ltd pays a royalty of TZS 30,000 per ton of ore mined subject to
a minimum rent of TZS 10,000,000 per year. The output in five years was as follows:
Year 2020 2021 2022 2023 2024

Output (Tonnes) 200 300 400 300 350

Required: Compute royalty, short workings, recoupment, transfers to statement of
profit or loss and amount receivable from lessee under the following cases:
(a) Pangani Ltd. has the right to recoup the short workings within the first four
years of the lease contract and not afterwards.
(b) Pangani Ltd. has the right to recoup the short workings within three years
following the payment of the respective short workings and not afterwards.

Solution 6.3
Case (a): When the lessee has the right to recoup the short workings within the first four
years of the lease contract and not afterwards.
Qnty Actual Minimum Short workings Short Transferred Royalty
in Per royalty rent (Recoupment) workings to statement Paid
Year tonne
tonnes of P/L
TZS TZS TZS TZS TZS TZS
2020 200 30,000 6,000,000 10,000,000 4,000,000 4,000,000 - 10,000,000

2021 300 30,000 9,000,000 10,000,000 1,000,000 5,000,000 - 10,000,000

2022 400 30,000 12,000,000 10,000,000 (2,000,000) 3,000,000 - 10,000,000

2023 300 30,000 9,000,000 10,000,000 1,000,000 4,000,000 4,000,000 10,000,000
2024 350 30,000 10,500,000 10,000,000 500,000 - - 10,500,000

Case (b): When the lessee has the right to recoup the short workings within three years
following the payment of the respective short workings and not afterwards.

Student’s Book Form Five
165

23/06/2024 17:35
ACCOUNTANCY_DUMMY_23 JUNE.indd 165
ACCOUNTANCY_DUMMY_23 JUNE.indd 165 23/06/2024 17:35