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).
CAclubindia
