VAT Questions and Answers PDF

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LESSON NINE VAT QUESTIONS QUESTION ONE Saika Co. Ltd. a manufacturer, purchases raw materials at Sh.1,000,000. The company then incurs conversion costs which are estimated at 40% of material cost. The profit mark-up is 20% of total cost. The completed product is sold to Chemuka Wholesalers who then incur conversion costs of 50% on cost. The wholesalers mark-up is 10% on cost. The wholesaler sells the product to a retailer, who has no conversion costs but sells at a profit of 30%. Required: Assuming VAT is charged at 15% on all products, compute the total VAT payable. (10 marks) QUESTION TWO Jenga Engineers and Associates is a firm of engineers and designers. In the year of income 2015 they earned professional fee of Sh.7,500,000 before VAT. Their accounts show the following expenses: Medical services Accountancy and audit Legal services Design materials Salaries and wages Depreciation

Sh. 180,000 225,000 300,000 1,600,000 2,410,000 985,000

Required: (i) (ii)

Value Added Tax Account for the year of income 2015. ( 6 marks) Comment on payment of VAT computed above. ( 2 marks)

QUESTION THREE Sponex Limited deals in a wide variety of low-price sports goods. Shown below is a list of transactions for the month of June 2016. June 2 June 3 June 4

June 9 June 11

Purchased goods on credit from Marun Shoes of Sh.96,000 Paid freight charges of Sh.2,450 on the shipment of goods purchased from Manrun Shoes Upon unpacking the goods from Manrun Shoes, discovered that some of the shoes were the wrong style. Returned those shoes which cost Sh.4,000 to Manrun Shoes and received full credit. Sales made on account to Ripa Sports for Sh.141,000 Paid Sh.2,200 freight charges on the shipment to Ripa Sports.

June June June June

12 16 19 21

Paid Marun Shoes in full Made credit sales to Holiday Sports for Sh.27,550 Received payment in full from Ripa Sports. Holiday Sports returned goods worth Sh.6,500

All transactions were subject to Value Added Tax where applicable. The rate of VAT is 15%. Required: (a)

Sportex Limited Value Added Tax Account for June 2016 ( 8 marks) (b) If the amount calculated above is not paid on time, what penalties will be imposed? ( 3 marks) QUESTION FOUR Given below were the purchases and sales made by Tough Limited during the month of December 2015. The prices were inclusive of VAT at the standard rate of 17 percent. Decembe r

1 5 10 20 25 31

Purchased 400 units at Sh.5,600 per unit Sold 40 units at sh.7,200 per unit Sold 80 units at Sh.7,200 per unit Sold 200 units at Sh.7,200 per unit Purchased 300 units at Sh.6,400 per unit Sold 80 units at sh.7,200 per unit Sold 200 units at Sh.8,000 per unit

There was no inventory at the beginning of the month but 100 units were in stock at the end of the month. Required: (a) (b)

The VAT account for the month of December 2015. On what date is VAT due payable?

ANSWERS QUESTION ONE Assuming the buying price was exclusive of VAT, then input tax for Salka = 16% x 1,000,000 = 160,000 SAIKA Ltd. Buying price exclusive of VAT Add conversion cost @ 40%

1,000,000 400,000

( 8 marks) ( 2 marks)

Add 20% mark-up Selling price exclusive of VAT Add 16% output VAT Selling price inclusive of VAT

1,400,000 280,000 1,680,000 268,800 1,948,800

VAT paid by Saika = 268,800 – 160,000 = 108,800 Chemuka Ltd. Buying price exclusive of VAT Add conversion cost @ 50%

1,680,000 840,000 2,520,000 252,000 2,772,000 443,520 3,215,520

Add 10% mark-up Selling price exclusive of VAT Add 16% output VAT Selling price inclusive of VAT Output VAT charged Less input VAT paid VAT payable by Chemuka

443,520 268,800 174,720

Retailer Buying price inclusive of VAT Buying price exclusive of VAT Input VAT paid Buying price exclusive of VAT Add 50% mark-up Selling price exclusive of VAT Add 16% output VAT Selling price inclusive of VAT VAT payable =

3,215,520 2,772,000 443,520 2,772,000 1,386,000 4,158,000 665,280 4,823,280

665,280 – 443,520 = 221,760

QUESTION TWO

(i)

JENGA ENGINEERS AND ASSOCIATES VALUE ADDED TAX ACCOUNT FOR YEAR 2016 INPUT TAX Accountancy & Audit (2,250 x 16%) Legal Services (300,000 x 16%) Design materials (1,600,000 x 16%)

OUTPUT TAX Professional fees 360 (Sh.7,500,000 x 16%) 48,000 256,00

1,200, 000

VAT payable

0 895,6 40 1,200,0 00

_______ 1,200, 000

Notes:

(ii)

1.

Medical services are exempt hence do not attract VAT.

2.

Salaries and wages and depreciation are not services provided for VAT purposes hence not taxable.

VAT on professional fees must have been accounted for on a monthly basis and payable in each following month, i.e the month following the month in which services were rendered. VAT is payable by bankers cheque addressed to Commissioner VAT by 20th of following month. Form VAT 3 is used to account for VAT payable monthly.

QUESTION THREE SPORTEX LIMITED (i)

(c)

Value Added Tax For June 2016 Sh. June 2 Purchases 13,241.4 (Sh.96,000 x 16/116) 303.4 June 11 Freight (Sh.2,200 x 1,040 16/116) 9,303.5 June 21 Returns in 23,888.3 (Sh.6,500 x 16%) VAT payable

Sh. June 4 Returns out (Sh.4,000 x 16%) June 9 Sales (Sh.141,000 x 16/116) June 16 Credit sales (Sh.27,550 x 16/116)

19,448.3 3,800 ______ 23,888.3

If amount of VAT payable as calculated above is not paid on time then a penalty higher of Ksh.10,000 or 5% of VAT due is imposed plus interest at rate of 2% per month compounded.

QUESTION FOUR

(ii)

640

TOUGHT LIMITED (a)

VAT Account for the month of December 2015

Shs. Dec 1st

Purchases 16/116(400)(5,600)

20th

Purchases 16/116(300)(6,400)

Shs.

Dec 308,966 1st 5th 264,828 10th 25th

31st

Net VAT payable

43,137

616,931

31st

Sales 16/116(40) (7,200) Sales 16/116(80) (7,200) Sales 16/116(200) (7,200) Sales 16/116(80) (7,200) Sales 16/116(200) (8,000)

79,44 8 198,6 21 79,44 8 220,6 90 616,9 31...