Royalty and Short Working Accounts in Bihar Coal Company

Introduction:
Bihar Coal Company is a coal mining company that undertook some coal bearing land. In order to maintain proper accounting records, the company keeps separate accounts for royalty and short working.

Royalty Account:
Royalty is a payment made by the mining company to the owner of the land for the right to extract coal from the land. Bihar Coal Company prepares a separate royalty account to record the royalty paid to the landowner.

Steps to prepare Royalty Account:
1. Determine the royalty rate as per the lease agreement.
2. Calculate the total amount of coal extracted during the period.
3. Multiply the coal extracted by the royalty rate to arrive at the total royalty payable.
4. Record the royalty payment in the royalty account.
5. The balance in the royalty account represents the amount of royalty payable to the landowner.

Short Working Account:
Short working occurs when the coal extracted is less than the minimum amount specified in the lease agreement. Bihar Coal Company prepares a separate short working account to record such occurrences.

Steps to prepare Short Working Account:
1. Determine the minimum amount of coal specified in the lease agreement.
2. Calculate the total amount of coal extracted during the period.
3. If the total amount of coal extracted is less than the minimum amount specified in the lease agreement, record the difference in the short working account.
4. The balance in the short working account represents the amount of short working that needs to be made up in the future.

Conclusion:
By keeping separate accounts for royalty and short working, Bihar Coal Company is able to maintain proper accounting records and ensure timely payments to the landowner.