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Vat Practice Question

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22 views

Vat Practice Question

Uploaded by

nyashatakura26
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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VAT PRACTICE QUESTION

ABC (Pvt) Ltd is a refrigerator (fridge) and deep freeze (freezer) manufacturer based in Harare. ABC‟s accountant has
been on sick leave and the bookkeeper attempted to prepare its VAT return for its tax period ending 30 September
2016.

The bookkeeper is not familiar with the VAT treatment applied to income and expense items posted to the VAT
output account. She therefore requested your assistance in checking the accuracy of the output tax amount.

A detailed analysis, with explanations of ABC‟s output tax amount of $119,382.52 for its tax period ending 30
September 2016 is as follows:

Sales (note 1) 4,500.00

Sales to employees (note 2) 170.13

Sale of fixed property (note 3) 115,434.78

Sale of vehicle (note 4) -

Sale of tables and chairs (note 5) 420.00

Interest on savings account (note 6) 912.00

Indemnity payment (note 7) 1,108.70

Company Car fringe benefit (note 8) 228.26

Rentals (note 9) -

Settlement Discount received (note 10) -

Recovery of bad debts (note 11) 1,108.70

Long-outstanding creditor (note 12) -

Fridge taken by the shareholder (note 13) -

119,382.52

Notes

1) ABC (Pvt) Ltd sells fridges and freezers to both local and foreign customers. A review of the sales for period 1
September to 30 September 2016 revealed gross sales of $21,000 (excluding VAT) to local customers and gross sales
of $9,000 to foreign customers. Sales to foreign customers were consigned to the customers‟ addresses by ABC.

2) During the month of September 2016, so as to clear old stock, ABC allowed its employees to purchase fridges and
freezers at a discounted price. Old stock was sold to its employees at a selling price of $5,000 (inclusive of VAT). This
stock had a cost of $6,500 (inclusive of VAT) and would normally have been sold to customers for $7,000.

3) During the month of September 2016, ABC sold a commercial property that it had held as an investment for a
number of years and that had been used 75% for making taxable supplies and 25% as a clinic used mainly by its
employees. The purchaser is to settle the purchase price of $885,000 (inclusive of VAT) in three instalments of
$295,000 (inclusive of VAT) each. The first instalment was received on 30 September 2016. The registration and
transfer of ownership has not yet taken place.
4) On 15 September 2016 ABC (Pvt) Ltd sold its old delivery vehicle to a non registered operator for $13,500. The
vehicle had been purchased from a registered operator.

On 20 September, ABC (Pvt) Ltd sold old tables and chairs to a sports club for $2,800. These tables and chairs had
been bought by ABC for its canteen that provides free meals to employees.

6) Output tax of $912 was provided for on the interest earned by ABC (Pvt) Ltd on its savings account.

7) An indemnity award of $8,500 was received by ABC (Pvt) Ltd from its insurers for a sales representative‟s company
car, a Toyota Camry that was stolen in July 2016 together with a laptop computer and a cellular phone. Of the award,
$7,500 was for the motor vehicle, $850 for the laptop computer and $150. Both, the motor vehicle, the laptop
computer and the cellular phone were company assets which were purchased from registered operators.

8) Five of ABC‟s employees have use of company vehicles for business and private use and one employee uses a
company vehicle, with an engine capacity of 1500cc during the day and parks it at the company premises at night and
during weekends and public holidays. Two of the vehicles have engine capacities that range from 1501 to 2000cc and
three have engine capacities above 3000cc.

9) ABC (Pvt) Ltd owns a block of flats that is let out for both commercial and residential purposes. During the month of
September, it received rentals of $15,500, 65% of which were from residential tenants.

10) ABC (Pvt) Ltd purchases 60% of its raw materials from Cold Parts (Pvt) ltd, being a major customer of Cold Parts; it
qualifies for a favourable settlement discount. On 28 September 2016, ABC made a payment of $32,500 (including
VAT) to Cold Parts being the settlement of its purchases made during August 2014 of $35,000 (including VAT).

11) During January 2016, ABC sold stock to Mountain Breeze (Pvt) Ltd for $13,500 (inclusive of VAT) on credit. In
March 2016, Mountain Breeze went into liquidation and the accountant of ABC wrote off the entire $13,500 owing as
a bad debt. In September 2016, $8,500 was received from the liquidator of Mountain Breeze.

12) In August 2015, ABC bought stock from Atlas (Pvt) Ltd, a registered operator for $10,750 (inclusive of VAT) and
claimed input tax in the relevant tax period. It encountered quality problems with this stock and decided to pay the
supplier $6,500 (inclusive of VAT) in August 2015. It refused to settle this account until quality problems are solve. By
30 September 2016, it still had not settled the account.

13) Jack is the sole shareholder of ABC (Pvt) Ltd and is not employed by the company. On 13 September 2016, he
removed a fridge from the trading stock for his personal use. He needed a new fridge in his kitchen at home. The
fridge had cost ABC $1,550 (inclusive of VAT) and had a market value of $2,500.

Required: Recalculate the output tax for ABC (Pvt) Ltd‟s September 2016 tax period. Your solution should deal with
each transaction listed and should be supported by brief explanations.

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