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  1. avatar says

    HELP please!!
    Receivables ledgar-$15800
    Error- A credit note to charles for $1000,plus sales tax of $300, had been posted to the receivables ledgar control account as $1300 and to charles personal account as $1000.

    the answer subtracts 300 from 15800 for correction..Why is that so??

    • Profile photo of John Moffat says

      The entry in the receivables ledger control account is correct (Cr receivables ledger control 1300, Dr Sales 1000; Dr Sales tax 300)

      However Charles account in the receivables ledger is wrong. We owes him the full 1300 and so his account should have been credited with 1300. But it has only been credited with 1000.
      So….the total of the balances in the ledger is wrong. Because it is a credit note, the total is too high by $300 and so 300 needs subtracting from the total.

      I hope that makes sense :-)

      PS In future please ask this sort of question in the F3 Ask the Tutor Forum, not as a comment on the lecture :-)

      • avatar says

        This was my first time posting a question so wasnt sure.Will do from next times onwards though.
        thankyou for the explanantion!! :)

  2. avatar says

    Kindly help with this question

    A company made sales of $2,950 inclusive of sales tax at 18%.
    The company debited the Receivables account $2,950, credited sales $2,950 and credited the
    Sales Tax account $531.
    What corrections are required?

    A- Dr Sales $450; Dr Sales tax $81; Cr Suspense account $531
    B- Dr Sales $531; Cr Suspense account $531
    C- Dr Receivables account $450; Cr Suspense account $450
    D- Cr Sales $531; Cr Sales tax $450; Cr Suspense account $81

    • Profile photo of John Moffat says

      Ooops!

      This time the workings in the answer are correct – the sales have been credited with 450 too much and so we need to Debit sales with 450.

      The sales tax has been credited with 81 too much, and so we need to debit sales tax with 81.

      The double entry for them is to credit suspense account with 531.

      So although the workings in the answer are correct, the answer is A.

  3. avatar says

    Also with regards to question 2 in the test section, why is the Delivery and Installation charges included as being non-current assets? Surely they’re both perishable expenses and could not be “liquidated”? It’s a bit like adding the electricity used by the computer as a non-current asset?

    • Profile photo of John Moffat says

      No – it is different.

      Delivery and installation are costs of getting the asset into a useable state, and they are not recurring expenses. Electricity is a cost of using the asset and is a recurring expense.

    • Profile photo of John Moffat says

      The syllabus has not changed, but it has always been questionable as to whether or not sales tax with discounts is examinable. Since it is a tax rule rather than an accounting problem, I think that it is unlikely to be asked.

  4. avatar says

    In example 1, could you explain why answer is D and not C? I do: 480,000 – 10% (trade discount) = 432,000 – 5% (settlement discount) = 410,400 + 17.5% (sales tax) = $482,220.

    • Profile photo of John Moffat says

      Although your calculation of the sales tax is correct, receivables are debited with the amount owing without the settlement discount. The customer only gets the settlement discount is they pay within 14 days, and if they do then the discount is then credited to receivables and debited to the discount allowed account.

      The settlement discount is 5% x 432,000 = 21,600, and so the total debited to receivables is 482,220 + 21,600 = 503,820

      • Profile photo of John Moffat says

        There is only one variant for F3 (there is no specific UK version).
        I think it is the same rule throughout the EU anyway (but I am not sure about that).

        The logic is that when the invoice is sent, we obviously don’t know whether they will pay quickly or not. If they do not pay quickly then you could argue that they are not paying enough sales tax. However, the tax people are not worried about that because most times it will be sales from one business to another business and so the tax charged by the seller is effectively reclaimable by the buyer and so there is no overall loss to the tax people. (Also, they do say that any discount must be commercial and so will only be small).

        I have had to leave this in the course notes because it potentially could be asked. However the examiner should not really test it because it starts being tax rules and this is not a tax exam (obviously there are lots of other tax rules that are certainly not examinable). All that really should be asked are the basic entries for standard transactions.

    • Profile photo of John Moffat says

      Because that is the way the law works in the UK – the tax is calculated as if the discount was taken, and it is not adjusted at all if the discount is not taken.

      (It may seem strange, but it has to be a ‘commercial’ level of discount – so the amount of tax involved will not be so great, and also remember that many sales will be made to VAT registered customers in which case it doesn’t really matter anyway because the customer will effectively get back the tax that the supplier has paid over.)

  5. Profile photo of mehnoor says

    Gross price is the price EXCLUDING the TAX and net price is the price INCLUDING the tax right???
    So for example 1,
    Lets say the gross price is x
    116% * x = $150
    which means that x = $129.31 (correct to 2dp)
    Now that we have the gross price, when we add the tax, we obtained the NET PRICE which is $150.
    From what you did, Gross price is $174 INCLUSIVE OF TAX??? :S #completelyConfused!

    • Profile photo of John Moffat says

      Wrong way round!

      The gross price includes the tax, the net price excludes the tax.

      So if the net price is $150 and the tax is 16%, then the tax will be 16% x 150 = $24.
      This means that the gross price is 150 + 24 = $174.

  6. avatar says

    In questions relating to trade & cash discounts wrt to sales tax, is it correct to first deduct the trade discount, then add the sales tax amount calculated for given ST percentage & then deduct the cash discount as most of the times we are not sure if or not we are suppose to deduct the cash discount in the problem…? We can still have the same ans if we deduct all the discounts first & add up the sales tax later…

    Thanks

  7. avatar says

    Hi, i just have a question!in exam for instance if you have got the correct answer it doesnt really mather will way you get the answer will it?cuz for example in example 2 and 3 where we go backwords in order to find the net selling price and the amount of the salex tax i used a different method lets say but it cheks at the end!i just did 120×17.5% wich gives the amount of the sales tax of 38.5 and then i just did 120-38.5=181.5>the net selling price!is this a correct procedure?thanks

    • Profile photo of John Moffat says

      @danielglover, Sales tax is added to get the full selling price.

      The net price is the price before the tax is added; the gross price is the price including the sales tax.

      Don’t confuse it with income tax (which is not in the syllabus for F3). Sales tax is charged on the net selling price, income tax is charged on the full income.

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