Question
Five years ago, Malpha Ltd. Leased a patent for the manufacture of a gadget used in mobile phones from Quickmart Ltd. The lease agreement provided
Five years ago, Malpha Ltd. Leased a patent for the manufacture of a gadget used in mobile phones from Quickmart Ltd.
The lease agreement provided for payment of royalty at the rate of Sh.100 per gadget produced with a minimum royalty of Sh.600,000 per annum. Royalties were payable on 15 March following the end of the financial year on 31 December. Short workings arising in any year were recoverable within the following two years of operations.
Malpha Ltd. Sub-leased the patent to Haripharm Ltd. At a royalty of Sh.120 per gadget sold with a minimum rent payment of ksh. 150,000, Short workings arising in any year were recoverable within the first four years of operation, royalties are payable at the end of each financial year on 31 December.
Given below is information about the number of gadgets produced and sold by both companies in the first five years of operations.
Year ended 31 December | Malpha Ltd. | Haripharm Ltd. | ||
Production (units) | Sales (units) | Production (units) | Sales (units) | |
2015 2016 2017 2018 2019 | 1,800 2,500 3,500 4,200 6,000 | 1,600 2,600 3,600 4,000 5,000 | 800 1,100 3,000 3,900 4,200 | 500 1,200 2,500 4,200 4,000 |
Required:
The accounts listed below in the books of Malpha Ltd.
(a) Royalty payable account for the five years ended 31 December 2019.
(4 marks)
(b) Landlord account for the five years ended 31 December 2019. (3 marks)
(c) Short workings recoverable account for the five years ended 31 December 2019.
(3 marks)
(d) Royalty income (receivable) account for the five years ended 31 December 2019.
(4 marks)
(e) Sub-tenant account for the five years ended 31 December 2019.
(3 marks)
(f) Short workings allowable account for the five years ended 31 December 2019.
(3 marks)
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