Vikash mining co took a mine on lease at a royalty of 2 Per tonne. The minimum rent was fixed 8,000 for the first year- 12,000 For Second year and 16,000 Per year thereafter.
Short workings of any year could be recouped out of of the royalty of next two years
only-
The Production during the First Fiver years was as Follows:-
Years Production(toon)
1. ₹ 2000
2 ₹ 4500
3. ₹ 6000
4. ₹ 9000
5 ₹ 12000
Show the journal entries in The book of Vikash mining?

Question

Answer

Journal Entries for Vikash Mining Co:

Year 1:
- Royalty Expense A/c Dr 8,000
- To Bank A/c 8,000
- (Being the minimum rent paid for the first year)

Year 2:
- Royalty Expense A/c Dr 4,000
- To Bank A/c 4,000
- (Being the shortfall of minimum rent from the previous year)

Year 3:
- Royalty Expense A/c Dr 6,000
- To Bank A/c 6,000
- (Being the shortfall of minimum rent from the previous year)

Year 4:
- Royalty Expense A/c Dr 8,000
- To Bank A/c 8,000
- (Being the shortfall of minimum rent from the previous year)

Year 5:
- Royalty Expense A/c Dr 12,000
- To Bank A/c 12,000
- (Being the shortfall of minimum rent from the previous year)

Explanation:
- In the first year, the minimum rent was paid in full.
- In the second year, there was a shortfall of 4,000 which was deducted from the royalty.
- In the third year, the shortfall of 6,000 was deducted from the royalty.
- In the fourth year, the shortfall of 8,000 was deducted from the royalty.
- In the fifth year, the shortfall of 12,000 was deducted from the royalty.
- The short workings of any year can be recouped from the royalty of the next two years only as per the terms of the lease agreement.

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