SKANS School of Accountancy, Multan.

FA1 Value added Tax and Discounts Batch: 52&53

Test 5 Total Time: 1 hour
Teacher: Muhammad AmjadKarim Total Marks: 60
Date:09/07/2020 Time:

MULTIPLE CHOICE QUESTIONS

Question# 01
What is the correct entry in the main ledger accounts for a total of transactions recorded initially in the
sales day book?
A. Debit Receivables, Credit Sales tax, Credit Sales
B. Debit Receivables, Debit Sales tax, Credit Sales
C. Debit Sales, Credit Sales tax, Credit Receivables
D. Debit Sales, Debit Sales tax, Credit Receivables
Question# 02
What is the correct entry in the accounts arising from the following page from a
purchases day book?
Gross sales Sales tax Net sales
Jenkins $400 $70 $400
Lottie $235 $35 $200
Bill $329 $49 $280
$1054 $154 $880

A. Debit Payables $1,034, Credit Sales tax $154, Credit Purchases $880
B. Debit Payables $880, Debit Sales tax $154, Credit Purchases $1,034
C. Debit Purchases $1,034, Credit Sales tax $154, Credit Payables $880
D. Debit Purchases $880, Debit Sales tax $154, Credit Payables $1,034
Question# 03
Which of the following result in a debit entry to the Sales Tax account?
(1) Sale tax receivable
(2) Cash paid to HMRC
(3) Input sales tax claim to HMRC
(4) Output sales tax claim to HMRC
A. All of them
B. None of them
C. 1 only
D. 1, 2 and 3
Question# 04
Which of the following statements are true?
(1) If output tax exceeds input tax, the difference is recoverable from the authorities.
(2) Sales tax is not included in the reported sales and purchases of the business.
(3) Sales tax is a form of indirect taxation.
A. 1 and 2 only
B. 1 and 3 only
C. 2 and 3 only
D. 3 only
Question# 05
Grieg returned goods to Bach that had a net value of $400. What entries are required to record this
transaction in Bach’s accounts if sales tax is payable at 17.5%?
A. Dr Returns inward $400, Cr Sales tax $70, Cr Grieg $400
B. Dr Sales Returns $400, Dr Sales tax $70, Cr Grieg $470
C. Dr Grieg $470, Cr Returns inward $400, Cr Sales tax $70
D. Dr Returns inward $400, Dr Sales tax $70, Cr Grieg $470
Question# 06
Wright recorded the following transactions in the month of July:
Sales $611 inclusive of sales tax at 17.5%
Purchases $320 net of sales tax
What amount is payable to/recoverable from the tax authorities in respect of July’s transactions?
A. $35.00 payable
B. $35.00 recoverable
C. $50.93 payable
D. $50.93 recoverable
Question# 07
At 31st January 2010, Angela owes the tax authorities $27,981. During the month of February, she
recorded the following transactions:
Sales of $200,000 exclusive of 17.5% sales tax
Purchases of $141,000 inclusive of sales tax
What is the balance on Angela’s sales tax account at the end of February?
A. $13,981
B. $38,306
C. $41,981
D. $17,656
Question# 08
The purchases account is:
A. credited with the total of purchases made, including sales tax
B. credited with the total of purchases made, excluding sales tax
C. debited with the total of purchases made, including sales tax
D. debited with the total of purchases made, excluding sales tax
Question# 09
State the accounting entries required if business made sales on credit of $10,000 on which it must account
for sales tax at rate of 20%
Ledger account $
Debit/ credit

Debit/ credit

Debit/ credit

Question# 10
Ahmad is registered for sales tax. During the May, she sold goods with a list price of $600, excluding
sales tax, to Imtiaz on credit. As Imtiaz was buying a large quantity of goods, Ahmad deducted trade
discount of 5% of the normal list price
If sales tax is charged at 15%, what will be the gross value of the sales invoice prepared by Ahmad?
$_____________
Question# 11
In the quarter ended 31 March 2002,Abid had taxable sales, net of sales , of $90,000 and taxable
purchase, net of sales tax, of $72,000
If the rate of sales tax is 10%, how much sales tax is payable to tax authority?
A. $1,800 receivable
B. $2,000 receivable
C. $1,800 payable
D. $2,000 payable
Question# 12
A business commenced with capital in cash of $1,000. Inventory costing $800 is purchased on crdit, and
half is sold for $1,000 plus sales, the customer paying in cash at once. The sales tax rate is 17.5%
What would the accounting equation after these transactions show?
A. Assets $1,775 less liabilities $175 equals capital $1,600
B. Assets $2,175 less liabilities $975 equals capital $1,200
C. Assets $2,575 less liabilities $800 equals capital $1,775
D. Assets $2,575 less liabilities $975 equals capital $1,600
Question# 13
Trade receivable and payables in the final accounts of the a sales tax registered trader will appear as
described by which the following?
A. Inclusive of sales tax in the statement of financial position
B. Exclusive of sales tax in the statement of financial position
C. The sales tax is deducted and added to the sales tax account in the statement of financial position
D. Sales tax does not appear in the statement of financial position because the business simply acts
as a collector on behalf of the tax authorities.
Data is relate Question 14 to 15
Question# 14
Goods were sold to credit customer at a list price of $1,250, subject to trade discount of 20%. The
customer has also been offered 2.5% discount for early settlement of the invoice. If the customer is not
expected to take advantage of the settlement discount terms offered
Show the relevant entries in receivable ledger control account and sales account to record the initial
transaction
Ledger account $
Debit/ credit

Debit/ credit

Question# 15
Show the relevant entries if customer subsequently pays promptly within the early settlement discount
period
Ledger account $
Debit/ credit

Debit/ credit

Debit/ credit
Question# 16
Your business sells goods to a customer, there are two alterantive terms on offer, Either pay $2,000 on 60
days’ credit OR pay in full in cash on delivery and receive a discount of 5%.At point of the sale, the
customer is expected to take up the discount offer , and subsequently pays the correct amount
immediately. How should the sale be recorded in the accounts?
A. Debit Receivable $1,900, Credit Sales revenue $1,900
B. Debit bank $1,900 Debit Discount received $100, Credit Sales revenue $2,000
C. Debit Bank $1,900, Credit Sales revenue $1,900
D. Debit Bank $2,000, Credit Discount received$100, Credit Sales revenue $1,900
Question# 17
On 1 May your business sold goods to a customer for $1,000 on one month’s credit. With the offer of a
discount of 2% for the payment within 7 days of the invoice date. At the point of sale, the customer was
expected to take u the discount offered. On 28 May, the customer sent payment by cheque for the
appropriate amount.
How should the payment from the customer be recorded in the accounting records?
A. Debit Bank $1,000, Credit Sales revenue $20, Credit Receivable $980
B. Debit Bank $980 Credit Receivable $980
C. Debit Receivable $980, Debit Discount received$20, Credit Sales revenue $1,000
D. Debit Bank $1,000, Credit Discount received$20, Credit Receivable $980
Question# 18
A sales was made to a customer at a price $ 1,000. The customer is entitled to 6% discount. Early
settlement discount of 2% has been offered to the customer for payment with in 10 day, but the customer
is not expected to take advantage of this offer
What is the total of the sales invoice?
A. $940
B. $921.20
C. $1,000
D. $980
Question# 19
Arashad Co. provides its customers with individual trade discount from list price. One customer, Ahmad,
negotiated a 15% trade discount from lost price. His transactions during the January were as f0llows:
January 12 Purchased goods with a $10,000 list price
January 14 Returned faulty goods with $3,000
January 20 Paid half othe net balance on his account
How much did Ahamd owe Arashad& Co at eht end of January?
$_______________
Question# 20
Alan bought a shirt at a cost $235, shoes at $59.20 and a Jacket at a cost of $70.
These are all gross figure, inclusive of the sales tax at 20%
How much sales tax has Alan paid?
$60.70
$72.84
$303.50
$364.20
Question# 21
Which book of prime entry used to record sales tax of credit sales?
Cash book
Sales day book
Journal
Sales return day book
Question# 22
Asif is registered for sales tax on 17 June he purchased a cash till for his business at the list price of
$4,000.He is given a trade discount of 25% and the sales tax rates is 20%
How much eill be the invoice received by Asif, inclusive of sales tax?
A. $833
B. $1,000
C. $3,600
D. $4,800
Question# 23
Mr. Malik Sajad is not registered for sales tax. She provides secretarial service to various farming
customer. If the customers pay early she allows settlement discount as
Cash on receipt of invoice 3%
Payment within 7 days 2%
Payment within 14 days 1%
Payment within 30 days Nil
How much would a customer be invoiced and expected to pay, if the sales value of services provided was
$520 and he was expected to pay 10 days after invoicing?
A. $520
B. $514.80
C. $509.60
D. $504.40
Question# 24
Name of customer Value of goods purchased Terms of contract
Qasim Purchase window Trade discount 5%, settle within net 30 days
envelopes$238
Afaq Purchase document wallets 3% for payment within of days, net 30 days and
paper $212.10 Afaq is expected to take advantage of the early
settlement discount offered.
Zohaib Purchase lockable files Trade discount 10%, 4% for payment within 10
$129.94 days, net 30 days and Zohaib is not expected to
take up the early settlement discount offered
Apply the VAT rates is 20 % for all customer
Calculate value of sales tax and total value of invoice of each customer?
Name of customer Value of VAT Total value of Invoice
$ $
Qasim

Afaq

Zohaib
Question# 25
A supplier of machinery allows its customers to deduct 3% from the invoice amount if they pay
within 14 days of the invoice date. This is an example of:
A. A bad debt
B. A trade discount
C. A cash transaction
D. An early settlement discount
Question# 26
The accounting entry for discounts allowed by supplier in the ledger accounts is.
A. Debit cash, credit discounts received
B. Debit cash, credit discounts allowed
C. Debit creditors, credit discount received
D. Debit discounts allowed credit debtors
Question# 27
A company receives a settlement discount of $35 from a supplier. The amount is treated to
the discount received account. As a result, gross profit is
A. Understated by $35
B. Understated by $70
C. Overstated by $70
D. Unaffected
Question# 28
Noor Sheikh discovers that she has posted sales returns with gross amount of $12,000 to
sales account and not accounted for the sales tax of 20%
what is the journal entry to correct this?
A. Debit sales tax account $2,000 Credit Sales account $2,000
B. Debit sales account $2,000 Credit Sales tax account $2,000
C. Debit Sales tax account $2,000, Credit Receivable control account $2,000
D. Debit Receivable control account $2,000, Credit Sales tax account $2,000