4.
Explanation
To prepare Y’s account in the books of X, we need to calculate the royalty payable to Y for each year based on the sales and the minimum rent. Additionally, we need to account for any recoupment of short workings over the first 4 years of the lease. Here’s the calculation:
Year 2017:
Sales: 2200 tons
Royalty at Rs. 2 per ton: 2200 tons * Rs. 2 = Rs. 4400
Minimum rent: Rs. 10,000
Since the royalty is less than the minimum rent, X pays the minimum rent. The short working for this year is Rs. 10,000 – Rs. 4,400 = Rs. 5,600.
Year 2018:
Sales: 3500 tons
Royalty at Rs. 2 per ton: 3500 tons * Rs. 2 = Rs. 7000
Minimum rent: Rs. 10,000
Since the royalty is greater than the minimum rent, there are no short workings to recoup from previous years.
Year 2019:
Sales: 4600 tons
Royalty at Rs. 2 per ton: 4600 tons * Rs. 2 = Rs. 9200
Minimum rent: Rs. 10,000
Since the royalty is greater than the minimum rent, there are no short workings to recoup from previous years.
Year 2020:
Sales: 5800 tons
Royalty at Rs. 2 per ton: 5800 tons * Rs. 2 = Rs. 11,600
Minimum rent: Rs. 10,000
Since the royalty is greater than the minimum rent, there are no short workings to recoup from previous years.
Year 2021:
Sales: 7000 tons
Royalty at Rs. 2 per ton: 7000 tons * Rs. 2 = Rs. 14,000 Minimum rent: Rs. 10,000
Since the royalty is greater than the minimum rent, there are no short workings to recoup from previous years.
Now, let’s account for the short workings recoupment over the first 4 years:
Year 2018:
Short workings to recoup from 2017 = Rs. 5,600
Royalty for 2018 = Rs. 7,000
Total payment to Y in 2018 = Rs. 5,600 (recoupment) + Rs. 7,000 (current year royalty) = Rs. 12,600
Year 2019:
No short workings to recoup from previous years. Royalty for 2019 = Rs. 9,200
Total payment to Y in 2019 = Rs. 9,200
Year 2020:
No short workings to recoup from previous years. Royalty for 2020 = Rs. 11,600
Total payment to Y in 2020 = Rs. 11,600
Year 2021:
No short workings to recoup from previous years. Royalty for 2021 = Rs. 14,000
Total payment to Y in 2021 = Rs. 14,000
So, you would prepare Y’s account in the books of X as follows:
Year 2017:
Debit: Royalty Expense – Rs. 10,000
Credit: Y (Supplier) – Rs. 10,000
Year 2018:
Debit: Royalty Expense – Rs. 12,600 Credit: Y (Supplier) – Rs. 12,600
Year 2019:
Debit: Royalty Expense – Rs. 9,200 Credit: Y (Supplier) – Rs. 9,200
Year 2020:
Debit: Royalty Expense – Rs. 11,600 Credit: Y (Supplier) – Rs. 11,600
Year 2021:
Debit: Royalty Expense – Rs. 14,000 Credit: Y (Supplier) – Rs. 14,000