Royalty Accounts MCQs Multiple Choice Questions and Answers
For BCOM, MCOM, CMA Intermediate and Junior Accountant Exam
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Questions and Answers which are useful for BCOM, MCOM, UKPSC Assistant
Accountant Exam and Various Professional Exams Like CA/CMA and CS.
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Introduction
to Royalty Accounts
Royalty is an amount payable for
utilizing the benefit of certain rights vested with some other person. For example,
a landlord possesses right over the mine in his land, the author of book
possesses right over his book. When the rights are leased the owner receives a
consideration for the same which is called royalty.
Royalty is a periodical sum based on the output payable by the lessee to the lessor for having utilized the rights of the lessor. The person who makes the payment to the owner of asset is known as lessee and the owner of the asset is known as lessor. Royalty is a business expense and closed and transferred to profit and loss account.
Royalty Accounts MCQs
Multiple Choice Questions and Answers
Choose the
correct answer:
1. Royalty
accounts is:
(a) Real
Account
(b) Nominal
Account
(c)
Personal Account
(d) None of
the above
Ans: (b)
Nominal Account
2. Short
workings is
(a) Excess
of minimum rent over the actual royalties
(b) Excess
of actual royalties over the minimum rent
(c) Excess
of actual output over the standard output
(d) Excess
of standard output over the actual output
Ans: (a)
Excess of minimum rent over the actual royalties
3. Surplus
is
(a) Excess
of minimum rent over the actual royalties
(b) Excess
of actual royalties over the minimum rent
(c) Excess
of actual output over the standard output
(d) Excess
of standard output over the actual output
Ans: (b)
Excess of actual royalties over the minimum rent
4. When the
royalties are less than the minimum rent?
(a)
Royalties account is debited with the actual amount of royalties earned.
(b)
Royalties account is debited with the minimum rent.
(c)
Royalties account is debited with the amount paid to the landlord.
(d)
Royalties account is debited with the excess of minimum rent over the actual
rent.
Ans: (a)
Royalties account is debited with the actual amount of royalties earned.
5. Which of
the following statements is false?
(a)
Recoupable short workings is a current asset
(b) Lapsed
short workings is a real account
(c) Short
workings is the part of minimum rent not represented by the use of rights
(d) Short
workings is the amount by which the minimum rent exceeds the actual royalty
Ans: (b)
Lapsed short workings is a real account
6. Which of
the following statements is false?
(a) If a
lessee leases a part of the leased property to another person, it is called
sublease.
(b) In case
of partial sub‐lease, lessor will be paid on the basis of the output of the
primary lease.
(c) Royalty
receivable account is opened in the books of the lessor.
(d) Minimum
rent is payable by the lessee even if the royalty amount is less than the
minimum rent.
Ans: (c)
Royalty receivable account is opened in the books of the lessor.
7. In the
books of lessee, short workings recovered amount is debited to
(a) Profit
& loss account
(b) Minimum
rent account
(c) Short
workings recoverable account
(d) Royalty
account
(e)
Landlord's account.
Ans: (a)
Profit & loss account
8. If
royalty is less than minimum rent, the balance of royalty account at the end of
the year has to be transferred to
(a) Capital
reserve account
(b) Reserve
capital account
(c) Profit
& loss account
(d) Minimum
Rent Account
Ans: (c)
Profit & loss account
9. In case
of recoupment of Shortworkings, the lessee:
(a) Debits
Shortworkings Account
(b) Credits
Profit and loss Account
(c) Credits
Shortworkings Account
(d) Credits
Landlord’s Account
Ans: (c)
Credits Shortworkings Account
10. If the Shortworkings
amount is not recouped (irrecoverable Shortworkings) due to expiry of the term
of recoupment, it should be debited to
(a) Minimum
rent account
(b)
Landlord account
(c) Royalty
account
(d) Profit
& loss account
Ans: (d)
Profit & loss account
11. When
royalty is paid, it is debited in the books of lessee to:
(a) Royalty
A/c
(b) P&L
A/c
(c)
Landlord A/c
(d) None of
the above
Ans: (c)
Landlord A/c
12.
Royalties are connected with the following type of business
(a)
Manufacturing industry
(b) Mining
industry
(c)
Construction business
(d) None of
the above.
Ans: (b)
Mining industry
13. Short
workings can be recouped out of
(a) Minimum
rent
(b) Excess
of actual Royalty over minimum rent i.e. Surplus
(c) Excess
of minimum rent over actual Royalty
(d) Profit
and Loss Account
Ans: (b)
Excess of actual Royalty over minimum rent i.e. Surplus
14. Royalty
is the agreement between the following persons
(a) Seller
and buyer
(b) Banker
& customer
(c) Trustee
and Beneficiaries
(d)
Landlord (Lessor) and tenant (Lessee).
Ans: (d)
Landlord (Lessor) and tenant (Lessee).
15. Dead
rent is also called
(a)
Outstanding rent
(b) Minimum
rent
(c) Prepaid
rent
Ans: (b)
Minimum rent
16. The
objective of fixing dead rent is:
(a)
Landlord should not get more than a certain amount per year
(b) Lessee
should not pay more than the amount of dead rent
(c)
Landlord must receive a minimum amount in case of low output or sales.
(d) None of
the above
Ans: (c)
Landlord must receive a minimum amount in case of low output or sales.
17. The
lessee's right to recoup Shortworkings is related to
(a) Fixed
Period
(b)
Subsequent two years
(c) Terms
and agreement
Ans: (c)
Terms and agreement
18. In case
of Sub‐Lease Royalty earned by the lessor is credited to
(a)
Sub‐lessee account
(b) Profit
and loss account
(c) Royalty
receivable account.
Ans: (c)
Royalty receivable account.
19. Ground
Rent or Surface rent means
(a) Minimum
Royalty payable
(b) Maximum
Royalty payable
(c) Fixed
rent payable in addition to minimum rent
(d) Rent
recovered at the end of lease term
Ans: (c)
Fixed rent payable in addition to minimum rent
Royalty Accounts MCQs
Multiple Choice Questions and Answers
State whether the following statements are True or
False:
1. Royalty
is a nominal
account. True
2. Royalty
is a revenue expenditure to
lessor. False
3. Royalty
is calculated either on the basis of production or on
sales. True
4. Royalty
paid on sales is debited to P/L Account and Royalty paid on
production is debited to Manufacturing account.
5.
Shortworkings is the excess of minimum rent over
royalty. True
6. Surplus
is the excess of royalty over minimum rent. True
7.
Shortworkings recoverable in future are shown in the balance sheet on the
assets side so long as they are
recoverable. True
8.
Shortworkings not recouped is debited to P/L
Account. True
9. When Shortworkings
is recovered debit is given to either royalties account or landlord
account. True
10. When
there is no provision for recoupment of Shortworkings, then Shortworkings of
each of the years is to be treated as irrecoverable Shortworkings and hence
transferred to profit and loss
account. True
11.
Recoupment of Shortworkings can be restricted or
unrestricted. True
12. Lump
sum payment for purchase of patent, mine or book is known as Nazrana, Lease
premium or
Goodwill. True
13. Lump
sum payment for purchase of patent, mine or book is not royalty, it is an asset
which is shown in the balance
sheet. True
14. Ground
rent or surface rent in the rent payable by the lessee in addition to minimum
rent. True
15. When
the Shortworkings become irrecoverable, the same are debited to the Trading
Account. False
16. Royalty
account is closed by transferring it to the landlord’s
account. False
17.
Unrecouped royalty suspense is to be transferred to Lessee's A/c in the books
of lessor.
18. Minimum
rent is also termed as dead
rent. True
19. When
the lessor receives payment, he credits royalty
A/c. False,
Lessee’s Account
20. The
excess of minimum rent over the actual royalties is known as rock
rent. False,
Redeemable dead rent
21. When
royalty is paid, it is debited in the books of Lessee to royalty
A/c. False,
Lessee Account
22. When Shortworkings
are recouped, the account to be debited in the books of lessee is landlord
A/c. True
23. The
balance of royalty receivable account is transferred to royalties’ suspense
A/c. False. Profit and Loss Account
24. When
the royalty agreement does not contain a clause for minimum rent, the question
of short workings and surplus and its recoupment does not arise. True
25.
Production = Sales + Closing Stock – Opening
Stock. True
Royalty Accounts MCQs
Multiple Choice Questions and Answers
Fill in the Blanks
1. Royalty
A/c is in the nature of Nominal A/c
2. Royalty
earned by the lessee is credited to Profit and Loss Account A/c
3. At the
time of royalty payment, the lessee debits Lessor’s A/c
4. Short
workings A/c shows debit balance in the books of Lessee.
5.
Shortworkings is the excess of minimum rent over royalty’s payable for
the year.
6.
Royalties is calculated either on the basis of production or sales.
7. Royalty
suspense A/c shows the Shortworkings which exists between tenant and lessor.
8.
Irrecoverable Shortworkings are transferred to Profit and loss account.
9.
Shortworkings can be recouped only out of Surplus.
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