Answer to Question #204551 in Finance for tetelo

Question

SA Traders operates as a hardware store and is a registered VAT vendor. The applicable tax rate is 15%. SA Traders makes use of the periodic inventory system, as well as control accounts. The transaction amounts are VAT inclusive where applicable.

On 4 August 2020, Rod Traders purchased stationery for use in the office and paid R1 120 in cash. The amount in the VAT input column in the relevant journal for this transaction will be:

A. R146,09

B. R137,54

C. R0 as the amount should be recorded as VAT output.

D. R168,00

Answer 1

VAT exclusive amount = VAT inclusive amount $\div$ ( 1 + VAT rate )

VAT amount = VAT exclusive amount $\times$ tax rate

Amount paid for stationary ( inclusive of VAT )= R 1120

Tax rate = 15%

Amount exclusive of VAT$= 1120 \div ( 1 + 15\% )$

= 973.91

VAT amount $= 973.91 \times 15\%$

$= R 146.09$

Hence , option A R146,09 is the correct option.