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Confused here

Forums › FIA Forums › FA1 Recording Financial Transactions Forums › Confused here

  • This topic has 5 replies, 4 voices, and was last updated 9 years ago by Ken Garrett.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • February 2, 2015 at 5:14 pm #224868
    myacca1990
    Participant
    • Topics: 153
    • Replies: 164
    • ☆☆☆

    Hi there) I got a question regarding the chapter 5 of kaplan book FA1 called “Sales and sales records”
    Question:-
    Alan buys a shirt costing $235 ,shoes for $59.25 and a jacket costing $70.These are all gross figures ,inclusive of sales tax at 17.5%.
    How much sales tax has Alan paid?
    A)$54.25
    B)$63.74
    C)$310
    D)$364.25

    I believe the answer is B but according to kaplan the answer is A.
    Can someone here please shed some light on this issue ?
    Regards

    February 2, 2015 at 7:49 pm #224892
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10594
    • ☆☆☆☆☆

    Total sales price = 235 + 59.25 + 70 = 364.25

    Remember: Gross price = Net price + Sales tax
    117.5 = 100 + 17.5

    Therefore, the ralationship between sales tax and gross payments = 17.5/117.5

    364.25 x 17.5/117.5 = 54.25.

    February 3, 2015 at 4:45 pm #225056
    myacca1990
    Participant
    • Topics: 153
    • Replies: 164
    • ☆☆☆

    @Gromit said:
    Total sales price = 235 + 59.25 + 70 = 364.25

    Remember: Gross price = Net price + Sales tax
    117.5 = 100 + 17.5

    Therefore, the ralationship between sales tax and gross payments = 17.5/117.5

    364.25 x 17.5/117.5 = 54.25.

    Can you please tell me where did that 117.5 and 100 figures came from ?

    October 2, 2015 at 9:28 am #274666
    secondstar
    Member
    • Topics: 16
    • Replies: 220
    • ☆☆☆

    Here’s the explanation:

    VAT is applied on NET AMOUNT, then both the VAT & NET AMOUNT are added, resulting GROSS AMOUNT, i.e.
    NET AMOUNT $100
    VAT @17.5% + $17.5
    GROSS AMOUNT = $117.5

    Now, lets understand the PERCENTAGES of these amounts.
    As, the % of VAT is applied on NET AMOUNT, so the NET AMOUNT should be 100%. Adding both the percentages will result in the % of GROSS AMOUNT, i.e
    Net Amount 100%
    VAT + 17.5%
    Gross Amount = 117.5%

    All of the % are based on NET AMOUNT. So, if you’ll apply the % of VAT or GROSS on NET AMOUNT, you’ll get their respective amounts (figures).
    VAT=17.5% of NET AMOUNT=17.5%*100=$17.5
    GROSS=117.5% of NET AMOUNT=117.5%*100=$117.5

    So, using these % calculations, shortcuts for calculations of VAT, NET & GROSS are made (there is a long derivation behind those, not necessary, but if you want, then i can explain that as well). The one used in this question is this:
    VAT (amount) = GROSS (amount) x 17.5% / 117.5%
    The rest are:
    GROSS (amount) = VAT (amount) x 117.5% / 17.5%
    NET (amount) = VAT (amount) x 100% / 17.5 %

    Remember these shortcuts & the calculations will be much easier.

    October 6, 2015 at 3:42 pm #275199
    crywolfe
    Participant
    • Topics: 0
    • Replies: 2
    • ☆

    The total cost which was divided by 117.5% meant that, it represents 117.5% rather than 100% coz those costs are inclusive of tax. Wassalam o alaikum

    Elias.

    October 6, 2015 at 5:36 pm #275229
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10594
    • ☆☆☆☆☆

    Correct.

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