Understanding Royalties Accounting

The purpose of minimum rent is to ensure that the lessor receives a guaranteed minimum amount of payment from the lessee, regardless of the actual production or sale of goods, thus mitigating the impact of low or zero royalty income.

The amount of royalty is determined based on the number of goods produced or the quantity of goods sold by the lessee.

The lessor might receive no or little royalty income when there is no or minimal production or sale of goods by the lessee, despite the lessee using the asset.

<p>Minimum rent provides a guaranteed minimum amount of payment to the lessor, ensuring a steady income even in cases of lower sales or output by the lessee.</p> Signup and view all the answers

<p>The minimum rent is fixed at the time when the lessor enters into an agreement with the lessee, and it is included in the contract to protect the interests of the lessor.</p> Signup and view all the answers