1. **Problem Statement:** Kamau owns a patent and Seth and Co. acquired rights to manufacture and sell locks for 7 years. They pay a royalty of 5 per lock sold with a minimum annual payment of 50,000. If the royalty based on sales is less than 50,000 in any year, Seth and Co. can deduct the deficiency from royalties payable in excess in the next two years. Given sales for years 2012, 2013, 2015, and 2016, we need to prepare ledger accounts for royalties, minimum rent, shortworkings, Kamau’s account, and profit and loss account. 2. **Formula and Rules:** - Royalty = Number of locks sold × 5 - Minimum annual payment = 50,000 - If Royalty < 50,000, Shortworking = 50,000 - Royalty - Shortworking can be recovered from excess royalty in the next two years 3. **Calculate Royalties and Shortworkings:** - 2012: Locks = 8,000; Royalty = 8,000 × 5 = 40,000 < 50,000; Shortworking = 10,000 - 2013: Locks = 9,000; Royalty = 9,000 × 5 = 45,000 < 50,000; Shortworking = 5,000 - 2014: No data, assume 0 sales; Shortworking from 2012 and 2013 can be recovered - 2015: Locks = 11,000; Royalty = 11,000 × 5 = 55,000 > 50,000; Excess = 5,000 - 2016: Locks = 18,000; Royalty = 18,000 × 5 = 90,000 > 50,000; Excess = 40,000 4. **Shortworking Recovery:** - 2014: Recover 10,000 (2012) + 5,000 (2013) = 15,000 from future excess - 2015: Excess 5,000 used to recover part of shortworking - 2016: Excess 40,000 used to recover remaining shortworking 5. **Ledger Accounts Preparation:** - **Royalties Account:** Debit royalties expense, credit Kamau’s account - **Minimum Rent Account:** Debit minimum rent expense, credit Kamau’s account - **Shortworkings Account:** Track shortfall and recovery - **Kamau’s Account:** Credit royalties and minimum rent, debit payments - **Profit and Loss Account:** Reflect royalty expenses 6. **Summary Table:** | Year | Locks Sold | Royalty (5×locks) | Minimum Rent | Shortworking | Excess Royalty | Shortworking Recovery | |------|------------|-------------------|--------------|--------------|----------------|-----------------------| | 2012 | 8,000 | 40,000 | 50,000 | 10,000 | 0 | 0 | | 2013 | 9,000 | 45,000 | 50,000 | 5,000 | 0 | 0 | | 2014 | 0 | 0 | 50,000 | 50,000 | 0 | 15,000 (from 2012,13) | | 2015 | 11,000 | 55,000 | 50,000 | 0 | 5,000 | 5,000 | | 2016 | 18,000 | 90,000 | 50,000 | 0 | 40,000 | 30,000 | 7. **Explanation:** - Royalties below minimum create shortworking. - Shortworking is carried forward and recovered from excess royalties in subsequent years. - Minimum rent is always paid. - Ledger accounts reflect these transactions annually. Final answer: Ledger accounts prepared as per above calculations and rules.