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Accounting Entries For VAT

CA Final Student


 

Treatment of Accounting for VAT Amount
 
Accounting for VAT amount there are 2 different method follows
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                    First Method                                          Second Method
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          Sale:-                                                          Sale:-
          Gross          15000                                      Gross          15000
          Vat 4%            600 15600                             Vat 4%**             0 15000
Less:-Purchase:-                                         Less:-Purchase:-
          Gross          10000                                      Gross          10000
          Vat 4%            400 10400                             Vat 4%**             0 10000
          Gross Profit          5200                           Gross Profit           5000
Less:-Expenses:-                                        Less:-Expenses:-
          Vat Paid (600-400)     200                             Vat Paid (600-400)**       0
          Net Profit              5000                           Net Profit                5000
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**In Second Method Net VAT amount of Rs.200 (600-400) go to B/S of Liabilities in the head of Duties & Taxes.
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My Query is as per Accounting Standard (AS) which method is Correct.
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Both the above method Net Profit is same
Only the Gross Profit is change
But Gross Profit % is not Change (i.e.33.33%).
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My point of view Second Method is correct because VAT amount are our Liabilities for pay to the Government and not an Expense in P/L (like First Method).


Total thanks : 1 times

 
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Acc. to Sec.145A, Purchases, Sales & Inventory has to be valued based on method regularly followed by assessee including any taxex, cess, duties paid during the course of bringing goods in to location or position for sale or consumption. Hence inclusive method must be followed as per IT Act.

As per AS 2, purchases should be valued at cost of purchase, freight, taxes[excluding to the extent if refunded by tax authorities] and other expenses incurred to bring the inventory to location and position. Hence as per AS 2 also, inclusive method must be followed for valuing both Purchases and Inventory.

If you are bound to value both purchases and inventory by inclusive method and disclose in profit and loss account, as per AS and IT act, then you are supposed to value the sales also at inclusive method, if not it will result in non-matching principle.

 
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professional accountant

 first method is correct  and if vat refundable then it should be shown in asset side in loans and advances as vat receivables and if payable only then in liabilitiers under current liability under sub heading duties and taxes payable

 
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CA Final Student


I am just agree with Sathish but totaly disagree with Shailesh.

Dear Satish you said as per AS 2 purchases should be valued at cost of purchase, freight, taxes[excluding to the extent if refunded by tax authorities] it is corect. but as per AS 2 also, inclusive method must be followed for valuing both Purchases and Inventory i not agree

because

as per ICAI Guidance not on Accounting for VAT are says that seprate A/c are open for Input Vat & Output Vat under Assets & Liabilities respectivaly and also said that VAT are not a part of Profit & Loss A/c.

I Attach the File of ICAI Guidance note with this post for clear your problem on VAT



Attached File : 8 accounting for vat.pdf downloaded 1899 times
 
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Thanks Mr. Deepen Keniya for sharing the file. But i have an appeal here. ICAI Guidance note is recommendatory in nature, while AS is mandatory in nature. No guidance note can superimpose AS issued by ICAI. Please post your comments and keep sharing more files.

Thanks

 
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Dear all, i am giving here some entries which is generally passed in the books by an organisation & think it will help you

 1} Material X costing Rs 100 purchased applicable rate of Vat @ 4%

                            Purchase A/C         Dr.                        100              

                            Input Vat A/C            Dr.                             4

                                                     To Cash \ Bank       A\C                     104

( being Material X puchased costing rs 100 & Vat paid @ 4%)

2} Material X after some processing converted in Y & sold at Rs 150 + 4% Vat.

                               Bank /Cash  A/C         Dr.                156 

                                              To Sales     A/C                                         150

                                              To Vat payable / Output Vat                          6

( being good sold & liability for VAt booked @ 4%)

3} Adjustement of Vat & payment of diffrencial amount

                                  Vat Payable / Output Vat A/c  Dr.              6

                                                                 To Input Vat  A/C                          4

                                                                 To Bank / Cash A/C                     2

( being Cenvat Credit Availed & vat liability paid )

before Passing third entry the Two Accounts (1) Input Vat A/C & (2) output Vat / Vat Payable A/c will be shown in the balance sheet under the head of Current Assets & Current liabilities respectivly

 
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Articled Assistant


The first method is absolutely correct as well as the second one. But there is a difference between AS 2 and Income Tax. Acording to Income Tax, VAT should be added in the sales and should be seperately shown as expenses, the amount which is paid and the balance as Current liabilty under the head of duties and taxes. For the calculation of closing stock, there is a huge dispute between AS and IT, Income tax has notified that the value of Input Taxes should be added to the cost of stock.

 
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There are number of laws not ammended in time. I am agree with Mr. Satish.

 
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accounts Manager


ple send me vat entries and at which place vat come balance sheet & PL

 
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sir,

 

we are facing problem in vat entries from april onwards:

 

we are taking vat input : 14.50 in input ledger that is to adjust in out put vat .

purchase entry:

purchase of accessories   100/-               Dr

input vat                                  14.50/-           Dr

TO RAMU (VENDOR)               114.50

 

BUT VAT DEPT SAID DOT'T TAKEN 100% INPUT VAT ONLY TAKE 90% INPUT HOW TO GIVE MONTH END ENTRY .

 

SOME BODY SAID DIFF GIVE DEBIT TO PURCHASE ACCOUNT AND DEDUT IN INPUT VAT

 

PLEASE GIVE CORRECT SOLLUTION THIS IS MOST IMP TO PAY VAT

 

PLEASE

 

 

B.NAGENDRA VARA PRASAD

 
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