MCQ on Royalty Accounts | Multiple Choice Questions and Answers | CMA MCQ

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 arises.       True

25. Production = Sales + Closing Stock – Opening Stock.                 True

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 royalties 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.

Choose the correct answer:

1. Royalty accounts is:

(a) Real Account

(b) Nominal Account

(c) Personal Account

(d) None of the above

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

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

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.

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

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.

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.

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

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

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

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

12. Shortworkings mean

(a) Excess of minimum rent over royalty

(b) Excess of Royalty over minimum rent.

(c) None of the above

13. Royalties are connected with the following type of business

(a) Manufacturing industry

(b) Mining industry

(c) Construction business

(d) None of the above.

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).

15. Dead rent is also called

(a) Outstanding rent

(b) Minimum rent

(c) Prepaid 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

17. The lessee's right to recoup shortworkings is related to

(a) Fixed Period

(b) Subsequent two years

(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.

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

20. 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