- 15 Marks
FA – Nov 2012 – L1 – SB – Q6 – Correction of errors
Prepare the Royalty Account, Donald’s Account, and the Short Working Recoverable Account.
Question
Maxwell acquired the rights to run a quarry from a parcel of land owned by Donald. The agreement provided for:
i. Payment of royalty of N40 per tonne of granite quarried;
ii. A minimum payment of N2,000,000 per annum; and
iii. The right to recoup (for short workings) is to be extinguished at the end of the third year.
During the first four years of the contract, the following quantities of granite were produced:
| Year | Tonnes Produced |
|---|---|
| 2008 | 40,000 |
| 2009 | 48,000 |
| 2010 | 54,000 |
| 2011 | 56,000 |
Maxwell’s accounting year ends on 31 December, and payment to Donald is made on 1 January following the year-end.
Required:
a. Prepare the Royalty Account (3 Marks)
b. Prepare Donald’s Account (7 Marks)
c. Prepare the Short Working Recoverable Account (5 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Financial Statements, Quarry Operations, Royalties, Short Working
- Level: Level 1
- Topic: Correction of errors
- Series: NOV 2012
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