How is irrecoverable short working (SW) closed?
When the SW of any year cannot be completely recouped within the prescribed period as per the agreement, the irrecoverable SW should be transferred to the P&L A/c.
P&L A/c Dr.
To SW A/c
(Being SW irrecoverable transferred to P&L A/c)

Define the term royalty?
Royalty is the sum payable for utilising the right vested with some other person. Royalty is payable by the lessee to the lessor based on output or sale. It is normally a periodical consideration. It is a Nominal A/c.

What is meant by recoupment of short workings?
Recoupment refers to the right of the lessee to recover the SW of the earlier years. Recoupment is possible only if the agreement provides for it. The recoupment may be permitted within a particular time or there may not be any limitation of time.

What is sub-lease?
If the lessee leases out to some other person the property taken on lease (either part or full) it is known as sub-lease. In such a case the status of the lessee will be two-fold, as a lessee paying royalty to the landlord and as a sub-lessor receiving royalty from the sub-lessee.

Should the lessee pay royalty on the production by sub-lessee? If so why?
The lessee has to pay the royalty to the lessor even on the production by sub-lessee because he has to account for the total production and not the production by him alone.

What is meant by lapse of S/W?
Lapse of S/W means the excess rent over royalty paid earlier to the lessor cannot be recouped by the lessee. Such lapse of S/W is a loss to the tenant because he cannot recover excess payment to the landlord.

If the rate of royalty is Rs. 2/- per tonne of ore raised, the minimum rent is Rs. 20,000/- per annum and the actual production of ore in the year is 8000 tonnes, find the royalty and short working.

ANALYTICAL TABLE

Therefore, Royalty = Rs. 16000/- and S/W = Rs. 4000/-

Is recoupment of S/W a loss or gain to the tenant?
Such recoupment of S/W is neither a loss nor gain to the tenant because he recovers what he has paid excess earlier to the landlord.

What are the A/c's to be opened in the books of the lessee?
The A/c's to be opened in the books of the lessee are as follows:
(1) Royalty Payable A/c
(2) Landlord's A/c
(3) Minimum rent A/c
(4) Short workings A/c

What are the A/c's to be opened in the books of a lessor?
The following A/c's have to be opened in the books of the lessor:
(1) Royalty receivable A/c
(2) Lessee's A/c
(3) Short workings suspense A/c

What are the A/c's to be opened in books of the sub-lessor?
(1) Royalty receivable A/c
(2) Sub-lessee's A/c
(3) Short workings suspense A/c