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Note:
(a) Any balance in the short workings allowable account is treated as a current liability
by the lessor.
(b) When the royalty agreement does not contain a clause for minimum rent, the question
of short workings and its recoupment do not arise, and hence, such accounts will
not exist.
FOR ONLINE READING ONLY
(c) The lessor is always entitled to get either the minimum rent or the actual royalty
whichever is higher subject to any adjustment for short workings recouped.

Example 6.4

On 1 January 2021, Mrefu Ltd., took a lease of a coal field from Mdogo Ltd. at
st
LANGUAGE EDITING
a royalty of TZS 100,000 per tonne of coal raised. The royalties were receivable
annually. The following table presents the quantity of coal raised during the first four
years:

Year 2021 2022 2023 2024
Output (tons) 300 500 550 600
Required:
Prepare the following accounts in the books of lessor:

(a) Lessee account, and
(b) Royalty receivable account

Solution 6.4
Analysis table
Quantity in tonnes Rate per tonne Royalty
Year
TZS TZS
2021 300 100,000 30,000,000

2022 500 100,000 50,000,000
2023 550 100,000 55,000,000

2024 600 100,000 60,000,000

Student’s Book Form Five
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