Ganesh Ltd. has taken on lease of a mine on royalty of 25 paise per tonne of iron ore raised with minimum rent of Rs. 10,000 p.a. Prepare a royalty chart for the output during the... Ganesh Ltd. has taken on lease of a mine on royalty of 25 paise per tonne of iron ore raised with minimum rent of Rs. 10,000 p.a. Prepare a royalty chart for the output during the next two years: I year 10,000 tonnes, II year 24,000 tonnes, III year 40,000 tonnes, IV year 90,000 tonnes.
Understand the Problem
The question is asking to prepare a royalty chart based on the lease of a mine with specified outputs over four years and a royalty rate. This involves calculating the total royalties due for each year and how they accumulate.
Answer
The total royalty collected is Rs 41,000, with total shortworkings of Rs 11,500.
Answer for screen readers
Here is the royalty chart:
| Year | Output (tonnes) | Royalty (Rs) | Minimum Rent (Rs) | Shortworkings (Rs) |
|---|---|---|---|---|
| 1 | 10,000 | 2,500 | 10,000 | 7,500 |
| 2 | 24,000 | 6,000 | 10,000 | 4,000 |
| 3 | 40,000 | 10,000 | 10,000 | 0 |
| 4 | 90,000 | 22,500 | 10,000 | 0 |
| Total | - | 41,000 | 40,000 | 11,500 |
Steps to Solve
-
Understand Input Parameters
We have the following information:
- Royalty rate = 25 paise per tonne = Rs 0.25
- Minimum rent = Rs 10,000 per annum
-
Calculate Royalties for Each Year
We need to calculate the royalties based on the output for each year.
- Year I:
- Output = 10,000 tonnes
- Royalty = $10,000 \times 0.25 = Rs 2,500$
- Year II:
- Output = 24,000 tonnes
- Royalty = $24,000 \times 0.25 = Rs 6,000$
- Year III:
- Output = 40,000 tonnes
- Royalty = $40,000 \times 0.25 = Rs 10,000$
- Year IV:
- Output = 90,000 tonnes
- Royalty = $90,000 \times 0.25 = Rs 22,500$
- Year I:
-
Compare to Minimum Rent and Consider Shortworkings
For each year, we need to check if the royalty meets the minimum rent. If not, the difference is recorded as shortworkings:
- Year I:
- Royalty = Rs 2,500 < Minimum Rent (Rs 10,000)
- Shortworkings = $10,000 - 2,500 = Rs 7,500$
- Year II:
- Royalty = Rs 6,000 < Minimum Rent
- Shortworkings = $10,000 - 6,000 = Rs 4,000$
- Year III:
- Royalty = Rs 10,000 = Minimum Rent
- Shortworkings = Rs 0
- Year IV:
- Royalty = Rs 22,500 > Minimum Rent
- Shortworkings = Rs 0
- Year I:
-
Prepare the Royalty Chart
Create a table summarizing the annual royaltie, minimum rent, and cumulative shortworkings:
Year Output (tonnes) Royalty (Rs) Minimum Rent (Rs) Shortworkings (Rs) 1 10,000 2,500 10,000 7,500 2 24,000 6,000 10,000 4,000 3 40,000 10,000 10,000 0 4 90,000 22,500 10,000 0 Total - 41,000 40,000 11,500
Here is the royalty chart:
| Year | Output (tonnes) | Royalty (Rs) | Minimum Rent (Rs) | Shortworkings (Rs) |
|---|---|---|---|---|
| 1 | 10,000 | 2,500 | 10,000 | 7,500 |
| 2 | 24,000 | 6,000 | 10,000 | 4,000 |
| 3 | 40,000 | 10,000 | 10,000 | 0 |
| 4 | 90,000 | 22,500 | 10,000 | 0 |
| Total | - | 41,000 | 40,000 | 11,500 |
More Information
The total royalty collected over the four years is Rs 41,000, which exceeds the total minimum rent of Rs 40,000, although there were some shortworkings in the first two years.
Tips
- Failing to account for shortworkings: Some may overlook calculating shortworkings in the years where royalties are less than the minimum rent. Ensure to subtract the royalty from the minimum rent for those years.
- Not converting units: Remember to keep consistent units when calculating royalties; ensure prices are in Rs and outputs are in tonnes.
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