Dear Sir,
I have the following question:
We usually apply sales tax rate to net amount (which is the amount after trade and cash discounts are deducted) to calculate sales tax. Does this rule change if a customer is expected or not expected to take cash discount at the point of sale?
Let's imagine product A has a list price of $100, trade discount is 10%, cash discount is 5% and sales tax rate is 20%.
First scenario: customer is expected to take cash discount, then invoice amount is calculated as follows:
$100-$100*10%=$90-$90*5%=$85.50+$85.50*20%=$102.60
Second scenario: customer is NOT expected to take cash discount, then invoice amount is calculated as follows:
$100-$100*10%=£90+$85.50*20%=$107.10
Am I right?
Ask the Tutor ACCA FA
Sales Tax
7y ago#1The sales tax is calculated assuming that the customer takes all the discounts. It is not re-calculated if they end up not taking the discount for early payment.
(Given that this is a tax rule, it is unlikely to be relevant for Paper FA (F3) )
Thank you very much for your help, Sir.
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