Mr. A purchase 1000 units @ Rs. 100 per unit. Vat charge @ 4 %. After charging VAT he get discount of 10% on gross amount.. He will get the credit of VAT.
Please suggest me what should be inventory value, whether Rs. 1 lac (in which discount should be credited directly to the P/L A/c). or Rs. 89600/-
Thanks
I think value of inventory would be 90000 here.
Lets see
100+4%-10%= 93.6(Price after discount but including VAT-104)
So value of inventory=93.6*100/104=90/unit
so 90000
i also think of 10000-10000=90000
I hope cost of inventory should be this
Purchase a/c ---Dr 1000*100=100000
Vat Receivable A/c Dr 100000*4%=4000
To Cash Discount A/c 104000*10% =10400
To Party A/c 104000-10400=93600
so the inventory cost will be Rs 100000/- and cash discount will directly credit to P/L account
a) Bill Amount - 100000
b) Add VAT - 4000
C) LESS Disclount 10400
D) NET AMOUNT 93600
If Vat is refundable then it should be shown seperately. So the entry would be
Purchase a/c Dr 100000
Vat Refundable A/c 4000
To Discount Received 10400
To Bank 93600
And there fore the closing Stock will be valued at 100000.
in my opinion.....mr. A can also give debit note to the vseller n debit his/her account...n pass d following entry.....
Purchase a/c dr. 100000
Vat a/c dr. 4000
To Bank a/c 104000
n later on pass d following entry...
Party a/c dr. 10400
To Discount a/c 10400
Plz correcty if i am wrong....
thanks n regards
Thank You Santhosh
The discount received is a trade discount and not a cash discount. Trade discounts are deducted from the purchase price and not accounted for seperately. Since in the instant case the discount is given for both the basic price and VAT (which is recoverable), the entry would be as follows:
Purchases a/c Dr 90,000
(Rs 100000 less 10%)
Vat Recoverable a/c Dr 3,600
(Rs 4000 less 10%)
To Bank or Party's a/c 93,600
(depends if it cash or credit purchases)
(Also cash cannot be paid unless you want to attract the penal provisions of the Income Tax Act)
Therefore Inventory will be valued @ basic Purchases price i.e., Rs 90,000
Value of inventory is Rs.100000
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