While reviewing financial statements of a listed company, I found "VAT paid a/c" in debit side of P/L and "VAT realised A/c" in credit side of P/L and both are having same figures. On further investigation I discovered that the company is treating VAT Input ( in case of purchases) as its expense and naming it as "VAT paid A/c" while VAT output ( in case of sale) is treated as income and naming it as " VAT realised A/c". thats why both the accounts are shown in the P/L a/c. Now the excess of "VAT realised" over "VAT paid" is paid to the govt. and the entry is passed through "VAT paid A/c". this makes both the balance of "VAT paid" and "VAT realised" equal and thus the effect in P/L is nullified.
I want to know that whether the accouting treatment followed by the company is correct and if not, please sujjest the correct accounting treatment.
CAclubindia
