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VAT Query in book - Mastering Book keeping (accredited by ICB

Acorn2oak
  • 167 posts
  • # 70849

Hi

Have been going through a paper in the Mastering Book-keeping book (Dr Peter Marshall) and have come across a problem on VAT.

The question is on page 366 - i have allowed for the 5% early payment and the 10% trade discount and come up with a vat charge of £107.10 - the answer in the book comes up as £107.73.

I am obviously missing something - any assistance would be appreciated

Regards

Martin

  • "Helping small acorns become large oaks"

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Liz D
  • 273 posts
  • # 70862

Hi Martin

Can you type out question?

It's all to do with where you are including the figures - I am assuming at the moment that you have calculated as follows:

Goods-Less Trade Discount = x
x - plus VAT = y

y - Less Early Settlement

However you should be calculating:

Goods - Less Trade Discount -  less Early Settlement = x

x - plus VAT = y


As I say though - can you type question?

Cheers

Liz

edited - oops typed less instead of plus !!



Edited at 12 May 2011 07:32 PM GMT

Edited at 12 May 2011 07:33 PM GMT
Acorn2oak
  • 167 posts
  • # 70886

Liz D said:

“Hi Martin

Can you type out question?

It's all to do with where you are including the figures - I am assuming at the moment that you have calculated as follows:

Goods-Less Trade Discount = x
x - Less VAT = y

y - Less Early Settlement

However you should be calculating:

Goods - Less Trade Discount - Early Settlement = x

x - less VAT = y


As I say though - can you type question?

Cheers

Liz



”


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Acorn2oak
  • 167 posts
  • # 70888

Hi Liz

The invoice is set out as follows:-

15 @ 14.50  (17.5 vat)         £217.50
15 @11.50 (17.5 vat)           £172.50
10 @ 33.00 (17.5 vat)          £330.00
20 @8.99 (zero rated)          £179.80
10 @ 7.99 (zero rated)         £79.90

Total                                      £979.70

Less trade discount   10%     £97.97

Net Goods                              £881.73

Vat                                         £107.73

Invoice Total                          £989.46

Terms 5% 14 days/30 days net


Regards

Martin

  • "Helping small acorns become large oaks"

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  • 28 posts
  • # 70890

Acorn2oak said:

“Hi Liz

The invoice is set out as follows:-

15 @ 14.50  (17.5 vat)         £217.50
15 @11.50 (17.5 vat)           £172.50
10 @ 33.00 (17.5 vat)          £330.00
20 @8.99 (zero rated)          £179.80
10 @ 7.99 (zero rated)         £79.90

Total                                      £979.70

Less trade discount   10%     £97.97

Net Goods                              £881.73

Vat                                         £107.73

Invoice Total                          £989.46

Terms 5% 14 days/30 days net


Regards

Martin”

Martin I think I may see where you may have a different outcome;

I'm guessing you've taken the three tax inclusive amounts and added them up then taken off 15%
£217.50
£172.50
£330

Total £720
Deducting 15% making £612 which gives a VAT charge of £107.10

Instead you need to take the 10% trade discount from £720 first, leaving you with £648
You then deduct 5% from your new total giving £615.60
The total VAT on this amount works out as £107.73 

Hope this clarifies,
Gemma 
  • Fellow
  • Practice Licence
  • 27 posts
  • # 70891

Acorn2oak said:

“Hi Liz

The invoice is set out as follows:-

15 @ 14.50  (17.5 vat)         £217.50
15 @11.50 (17.5 vat)           £172.50
10 @ 33.00 (17.5 vat)          £330.00
20 @8.99 (zero rated)          £179.80
10 @ 7.99 (zero rated)         £79.90

Total                                      £979.70

Less trade discount   10%     £97.97

Net Goods                              £881.73

Vat                                         £107.73

Invoice Total                          £989.46

Terms 5% 14 days/30 days net


Regards

Martin”
Hi Martin

To achieve the correct amount of VAT you take the £979.70 subtract the zero rated amounts of £179.80 and £79.90. New total £720 subtract 10% then subtract 5% and multiple by 17.5%.

Where an early settlement discount is offered, the VAT is always calculated assuming the discount will be taken.  If payment is not made within the time frame for taking the discount the VAT is still charged at the rate applicable to the net less the discount. So if paid within settlement terms the amount to pay would be £957.06, if outside the settlement terms £989.46.

I hope this helps your understanding.

Kind regards

Lynne
annepebo
  • Member PM.Dip
  • Practice Licence
  • 58 posts
  • # 70894

cost T disc 10% net set disc vatable vat gross
217.50 21.75 195.75 9.79 185.96 32.54 228.29
172.50 17.25 155.25 7.76 147.49 25.81 181.06
330.00 33.00 297.00 14.85 282.15 49.38 346.38
179.80 17.98 161.82 8.09   161.82
79.90 7.99 71.91 3.60   71.91
       
979.70 97.97 881.73 44.09 615.60 107.73 989.46
pay in 14 days 881.73 -44.09 107.73 945.37
pay later 989.46
 


         
Hope this helps
Acorn2oak
  • 167 posts
  • # 70908

thank you

much appreciated

Kind regards

Martin

  • "Helping small acorns become large oaks"

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