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WHY SALES TAX THEY ARE DIVIDING 20/120 AND PURCHASE 20/100 TO GET THE PERCENTAGE? WHY 120?
D Co’s transactions for the month of September 2015 were as follows:
$
Sales (including sales tax) 600,000
Purchases (excluding sales tax) 450,000
D Co is registered for sales tax at 20%. On 1 September 2015 the sales tax account showed sales tax
recoverable by D Co of £2,000.
What was the balance on the sales tax account on 30 September 2015.
A $8,000 Dr
B $8,000 Cr
C $12,000 Dr
D $12,000 CrAnswer:
Sales Tax T Account
Balance b/f (the recoverable sales tax) $2000
Purchases (450,000 x 20/100) $90000
Balance c/f $8000Sales (600,000 x 20/120) $100,000
Balance b/f 8,000
The correct answer to this question is therefore B: $8,000 Cr.Have you watched our free lecture on sales tax, because this is fully explained in the lecture (and I cannot type out all of our lectures here 🙂 )
If something has a price of 100 without tax (the net price), then the tax will be 20, and the full selling price including tax (the gross price) will be 120.
So for every 120 sales (including tax), the amount of the tax will be 20.
Therefore is sales are 600,000 including tax, the amount of the tax will be 20/120 x 600,000
I do suggest that you watch our lectures. Our free lectures are a complete course for Paper F3 and cover everything needed to be able to pass the exam well.
thank you for the reply and sorry didn’t notice that there is a lecture on sales tax; will watch it definitely 🙂
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