2.2 VALUE-ADDED TAX (VAT)
The information below relates to Creamline Traders for their two-month VAT period ended on 31 August 2016. All items are subject to 14% VAT.
REQUIRED:
Calculate the amount receivable from or payable to SARS for VAT on 31 August 2016. Indicate whether the amount is receivable or payable.
(You may complete a VAT Control Account.)
INFORMATION:
A. Amount owed to SARS for July 2016, R14 250.
B. Details in respect of VAT for August 2016:
| DETAILS | EXCLUDING VAT | VAT | INCLUDING VAT |
|---|---|---|---|
| Merchandise purchased/Expenses paid | R198 000 | | R225 720 |
| Goods taken by owner for personal use | | R2 940 | |
| Returns by debtors | | R1 120 | |
| Debtors' accounts written off | R9 500 | | |
| Total sales | | | R332 880 |
Answer (2)
To determine the VAT amount receivable from or payable to SARS for Creamline Traders as of 31 August 2016, we need to perform a series of calculations based on the given information. Let's go step-by-step through the VAT Control Account.
Calculate VAT on Merchandise Purchased:
The inclusive amount paid for merchandise is R225,720, and we need to find the VAT-exclusive portion.
VAT-exclusive amount = 1 + 0.14 R 225 , 720 = R 198 , 000
The VAT is already given as the difference:
VAT on purchases = R 225 , 720 − R 198 , 000 = R 27 , 720
Goods Taken by Owner for Personal Use:
The VAT on goods taken for personal use is directly given as R2,940.
Returns by Debtors:
VAT from returns is R1,120, reducing the VAT liability.
Debtors' Accounts Written Off:
These are considered bad debts, and the amount given is VAT-exclusive at R9,500.
Total Sales Inclusive of VAT:
The total sales amount is R332,880, which includes VAT.
VAT-exclusive sales = 1 + 0.14 R 332 , 880 = R 292 , 000
VAT collected on sales is:
VAT on sales = R 332 , 880 − R 292 , 000 = R 40 , 880
VAT Payable/Receivable Calculation:
We will now compile these into the VAT Control Account:
Opening balance payable: R14,250
Add: VAT on sales: R40,880
Less: VAT on purchases/expenses: R27,720
Less: VAT on goods taken for personal use: R2,940
Less: VAT on returns: R1,120
Perform the calculation:
Closing balance = R 14 , 250 + R 40 , 880 − R 27 , 720 − R 2 , 940 − R 1 , 120 = R 23 , 350
The result is a balance of R23,350 payable to SARS, which means Creamline Traders owes this amount for VAT at the end of the period.
Creamline Traders has a VAT payable of R23,350 to SARS as of 31 August 2016. This amount is calculated after considering the VAT on purchases, personal use of goods, returns, and total sales. The calculations indicate that the business owes this amount in VAT for the period.
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