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Sales Tax

Forums › ACCA Forums › ACCA FA Financial Accounting Forums › Sales Tax

  • This topic has 5 replies, 3 voices, and was last updated 7 years ago by secondstar.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • November 22, 2015 at 6:47 am #284431
    Ayo
    Member
    • Topics: 3
    • Replies: 1
    • ☆

    During October a company has made sales of $270,000(inclusive of sales tax at the rate of 20%) and had made purchases of $100,000 (exclusive of sales tax at 20%).

    What is the balance on the sales tax account at the end of October?

    Kindly help me to solve this question.

    Thank you.

    November 22, 2015 at 8:50 am #284453
    neilsolaris
    Member
    • Topics: 59
    • Replies: 415
    • ☆☆☆

    Here’s my attempt of an answer.

    Tax payable is £270,000 × 0.2 = £54,000

    Tax reclaimable is £100,000 × 20/80 = 25,000

    Assuming there was no balance b/f, and the purchases were all charged with sales tax, the balance should be £25,000 – £54,000 = £29,000 payable (credit entry).

    November 22, 2015 at 4:54 pm #284629
    secondstar
    Member
    • Topics: 16
    • Replies: 220
    • ☆☆☆

    @neilsolaris said:
    Here’s my attempt of an answer.

    Tax payable is £270,000 × 0.2 = £54,000

    Tax reclaimable is £100,000 × 20/80 = 25,000

    Assuming there was no balance b/f, and the purchases were all charged with sales tax, the balance should be £25,000 – £54,000 = £29,000 payable (credit entry).

    Sales figure 270,000 is INCLUSIVE of tax while Purchases figure 100,000 is EXCLUSIVE of tax. You did the “Complete Reversal Error”… 😉

    Here’s the correction.

    Output Tax (Tax on Sales):
    270,000*20/120 = 45,000

    Input Tax (Tax on Purchases):
    100,000*20% = 20,000

    Tax Payable = Output Tax – Input Tax = 45,000 – 20,000
    Tax Payable = 25,000
    which will be the balance at the end of October.

    November 22, 2015 at 5:48 pm #284633
    neilsolaris
    Member
    • Topics: 59
    • Replies: 415
    • ☆☆☆

    Oops. I hadn’t made a reversal error, I just messed up on my fractions! I meant 20/120 & 20/100 respectively.

    November 23, 2015 at 7:08 am #284665
    Ayo
    Member
    • Topics: 3
    • Replies: 1
    • ☆

    Thanks to you both i really appreciate.

    November 24, 2015 at 8:34 am #284766
    secondstar
    Member
    • Topics: 16
    • Replies: 220
    • ☆☆☆

    @neilsolaris said:
    Oops. I hadn’t made a reversal error, I just messed up on my fractions! I meant 20/120 & 20/100 respectively.

    Thats okay….. 🙂

    @ayoliberty said:
    Thanks to you both i really appreciate.

    Your Welcome…. 🙂

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