doubt..urgent...help

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abc

31 Points Posted on 22 February 2010

Q) Compute the VAT amount payable by Mr. A who purchases goods from a

manufacturer on payment of Rs. 2,25,000 (including VAT) and earn 10% profit on

sale to retailers? VAT rate on purchase and sale is 12.5%

Ans) Calculation of invoice value

Purchased price of goods excluding VAT (225000 / 112.5 X 100) 200000

Add: Profit margin 20000

Amount of bill 220000

Add: VAT @ 12.5% 27500

Total invoice value 247500

VAT to be paid by Mr. A

VAT charged in the invoice 27500

Less: Input credit (12.5% of Rs. 200000) 25000

Net VAT payable 2500

i am confused as to if 10% PROFIT ON SALE TO RETAILERS is given...then why have we calculated the profit on cost???

why isnt the profit calculated as 10/110 * 200000

Replies (1)

Chartered Accountant

25 Points Posted on 22 February 2010

Purchase invoice		225000
Less : VAT credit		25000
Purchase cost to Mr. A	a	200,000
profit @ 10% (200000/90*10)	b	22,222
Retail invoice price before VAT	c=a+b	222,222
Vat payable	d	27,778
total retail invoice value	e=c+d	250,000

VAT payable on retail invoice	f	27,778
Vat credit available on pur	g	25,000
net Vat payable		2,778

Net outcome
As per ur calculation	(247500-2500-225000)	20000
As per calculation done as profit on sale price of retail invoice	(250000-2778-225000)	22,222