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From the scenarios provided:
(a) Identify which scenario pertains to royalties, rent, and lease respectively.
(b) Describe the distinguishing factors in each scenario that helped you identify the
correct term.
(c) Discuss the potential implications of each term in the preparation of financial
statements on the parties involved in the scenario.
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3. On 1 January 2023, a coal company took the lease of coal field at a royalty of
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TZS 5,000 per tonne of coal raised with the minimum rent of TZS15,000,000
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per annum and with right to recoup short workings on the first two years of the
contract. During the first three years the quantities of coal raised were 2,000, 4,000
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and 3,500 tonnes respectively.
Required: Prepare the ledger accounts in the books of lessor and lessee.
4. Asafu Co. Ltd. acquired right to extract mineral ore from the mines belonging to
Lawi Ltd. on the following terms:
(a) Royalties shall be TZS30,000 per tonne of ore extracted;
(b) Minimum royalty shall be TZS7,000,000 per month;
(c) Settlement will be made on monthly basis on the last date of each month; and
(d) The agreement came into effect on 1 May 2022.
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The following quantities were extracted by Asafu Co. Ltd. during the first five
months:
Month May June July August September
Output (in tons) 200 300 400 460 500
Required: Prepare the necessary journal entries and prepare ledger accounts in the
books of Asafu Co. Ltd.
5. On 1 January 2021 Julia Ltd. leased a piece of land for a minimum rent of
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TZS500,000 in the first year, TZS1,000,000 in the second year and thereafter TZS
1,500,000 per annum, merging into royalty of TZS 250 per tonne, with the power
to recoup short workings over the first three years only. The annual output for the
four years ending 30 September 2024 were 500, 3,000, 8,000, and 12,000 tonnes
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respectively.
Required: Prepare journal entries to record the above transactions in the books of Julia
Ltd.
6. Benko Ltd. acquired the right to manufacture and sell a medicine designed by Jabali
Ltd. on the following terms:
(a) Royalty to be paid at TZS 3,000 per unit of medicine sold;
Student’s Book Form Five
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