Page 193 - Accountancy_F5

Example 6.9
On 01 January 2020, Obi Ltd. acquired rights to extract minerals from Kahama
st
Gold on the agreement that Obi Ltd. would pay royalty of TZS 1,000 per kilogramme
extracted. The minimum rent shall be TZS 1,000,000 and short workings would be
recouped within the two years following the payment of short workings. The following
table presents the quantities of minerals extracted for a period of five years:
FOR ONLINE READING ONLY
Year 2020 2021 2022 2023 2024
Output (kgs) 1,200 800 700 1,100 1,250
Required: Prepare ledger accounts in the books of Obi Ltd. for a period of five years
ending 31 December 2024, assuming that the minimum rent account is
st
opened.

Solution 6.9
Table analysis
Year Qty Per Actual Minimum Short Short Transferred Royalty
in kgs royalty rent workings workings to statement paid
kgs (Recoupment) of P/L
TZS TZS TZS TZS TZS TZS
2020 1,200 1,000 1,200,000 1,000,000 - - - 1,200,000
200,000
1,000,000
2021 800 LANGUAGE EDITING - 1,000,000
200,000
1,000
800,000
2022 700 1,000 700,000 1,000,000 300,000 500,000 - 1,000,000
2023 1,100 1,000 1,100,000 1,000,000 (100,000) 300,000 100,000 1,000,000
2024 1,250 1,000 1,250,000 1,000,000 (250,000) - 50,000 1,000,000

Dr Royalty payable account Cr

Date Details TZS Date Details TZS

st
31 Dec. 31 Dec.
st
2020 Kahama Gold 1,200,000 2020 Manufacturing 1,200,000
2021 Minimum rent 800,000 2021 Manufacturing 800,000
2022 Minimum rent 700,000 2022 Manufacturing 700,000
2023 Kahama Gold 1,100,000 2023 Manufacturing 1,100,000
2024 Kahama Gold 1,250,000 2024 Manufacturing 1,250,000

Student’s Book Form Five
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