[Commerce Class Notes] on Royalty and Related Terminologies Pdf for Exam

Minimum rent is a rent that is also known as fixed rent, dead rent, contract rent, rock rent, or flat rent. It is the minimum sum that is given to the lessor of a property by the lessee so that the lessor receives a minimum amount of sum for a specific period. And the situation where he gets a benefit from or not is called the minimum rent. Minimum rent is known as the pre-determined rent that usually remains disclosed in the agreement where all the parties give their consent. 

Royalty Detailed Summary

A royalty is a legally enforced payment made to an individual or company in exchange for continuous use of their assets, which can include copyrighted works, franchises, or natural resources. When musicians’ original songs are broadcast on the radio or television, used in movies, played at concerts, clubs, and restaurants, or consumed through streaming services, royalties are paid to them. The vast majority of royalties are revenue streams intended to recompense song or property owners who license out their assets for usage by others.

Different Types of Royalties

Royalty payments can cover a wide range of property types.Royalties from books, royalties from performances, royalties from patents, royalties from franchisees, and royalties from minerals are all examples of royalties.

1. Book Royalties: These are payments made to authors by publishers. Typically, the author will be paid a set amount for each book sold.

2. Performance Royalties: When copyrighted music is broadcast on the radio, used in a film, or featured in a commercial, the owner of the copyright is compensated in some form by a third party.

3. Patent Royalties: It is paid to inventors or creators whose patents are used to protect inventions. Then, if a third party wants to use the same patent product, they must enter into a licensing agreement and pay royalties to the patent owner. The inventor is thus compensated for their intellectual property.

4. Franchise Royalties: A franchisee, or a business owner, will pay a royalty to the franchisor in exchange for the right to open a branch in the company’s name.

Characteristics of Royalty

• A royalty is a payment made by a third party to the owner of a product or patent in exchange for the use of the product or invention.

• A licensing agreement specifies the terms of royalty payments.

• The royalty rate or amount is typically a percentage ba

• Royalty contracts should benefit both the licensor (the person who receives the royalty) and the licensee (the person paying the royalty).

Important Terms used in Royalty Agreements

1. Royalty

Royalty is a recurring payment that may be based on a sale or output. Royalty is paid by the lessee of a mine to the lessor.

2. Landlord

Landlords are individuals who have legal rights to a mine or quarry, as well as patent or copybook rights.

3. Tenet

Tenet is a writer or publisher, as well as a lessee or patent, or who rents out the owner’s rights (usually commercial or personal) for a fee.

4. Minimum Rent

A type of assurance offered by the lessee to the lessor in line with the lease agreement in the case of a deficit of output, production, or sale is known as minimum rent, fixed rent, or dead rent. 

Difference Between Rent and Royalty

Payments for the purchasing of patent, land, copyright are known as capital expenditures and are recorded as a part of fixed assets. When these payments are made for use, then they become royalty. Accounting that is related to the transactions involving payment of the royalties is called Royalty Account. A Royalty Account is called a Nominal Account. Royalties are a source of income for the owners and an expense for the users of the product. 

The difference between rent and royalty also tells us that rents are paid according to the time. The variations of time can be per day or week as well as per year. But their payment depends on the production and yield. 

Payment of the Royalties as Business Expenses

Royalty is payable for the Lessor and is based on production. Royalty account is transferred to manufacturing or trading as well as production account. Royalties are payable based on the sales that are a selling expenditure and are transferred to the Profit or Loss account. 

The parties of the royalty are known as patent-holder, lessor, author, patentee, publisher, etc. Royalties are payable based on sales and production. The amount of the royalty is variable by sales and production.

The parties of the rent are called a tenant or landlord. Rents are payable by time or week. The amount of rent is fixed.

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