Differences between Rent and Royalty

28/06/2022 1 By indiafreenotes

Rent:

Rent is mostly payable according to time, as per day, per week, per month or per year etc. But the payment of royalty depends on yield or production. Payment of royalty is a business expense.

When the royalty payable to the Lessor is on the basis of production, it is a part of cost of production and, therefore, the Royalty Account is transferred to Trading or Manufacturing or Production Account. The Royalty payable on the basis of sales, which is a selling expenditure, is transferred to Profit and Loss Account.

Features

  1. The parties are known as tenant and landlord.
  2. No such clause is there.
  3. It is payable on the basis of time; weekly, monthly etc.
  4. Generally, the amount of rent is fixed with regard to time.

Royalty:

According to William Pickles, “Royalty is the remuneration payable to a person in respect of the use of an asset, whether hired or purchased from such person, calculated by reference to and varying with quantities produced or sold as a result of such asset.”

Types of Royalties:

There are many types of royalties but following types of royalty are very popular:

  1. Mining Royalties
  2. Brick-making Royalties
  3. Oils-wells Royalties
  4. Patent Royalties
  5. Copyright Royalties

Features

  1. The parties are known as lessor, author, patent- holder and lessee, publisher, patent- holder and lessee, publisher, patentee, etc.
  2. There arises a clause in the agreement to pay minimum rent.
  3. It is payable on the basis of production, sales etc.
  4. The amount is variable on the basis of production, sales etc.