Value added tax (VAT)

Question 1

What is a VAT vendor?

Answer 1

Anyone who’s turnover is greater than R1 Million a year, they are given a VAT registration number

Question 2

What is the process of the VAT vendor as an agent? (3)

Answer 2

1. Customer pays VAT to the VAT vendor (business)
2. VAT vendor collects VAT from customer
3. SARS receives VAT from VAT vendor (15%)

Question 3

How do you calculated the marked selling price?

Answer 3

COST + Mark-up = Selling price (100%) + VAT (15%) = Marked selling price (115%)

Question 4

How are sales recorded? (i.e output VAT)

Answer 4

DR Bank (A)
CR SARS (VAT) (A/L)
CR Sales income (E)
(A DR and two CR’s)

Question 5

What are “zero-rated” supplies? (0% VAT)

Answer 5

They are items that have no VAT for low income households

Question 6

What is the VAT formula?

Answer 6

(What you want (%)/What you know (%)) x What you know (R)

Question 7

What is Output VAT? (3)

Answer 7

• Outputs are the goods sold or services provided by business
• If the business is a VAT vendor, the business charges OUTPUT VAT
• The output VAT is paid over to SARS

Question 8

How is Output VAT is a liability? (3)

Answer 8

1. Business A has made a sale and collected VAT from a customer on behalf of SARS
2. Business A has a present obligation to pay over the output VAT collected of R60 to SARS
3. The obligating event that gives rise to the R60 owing is the sale of inventory and the collection of VAT

Question 9

What is input VAT? (3)

Answer 9

• Inputs are all the goods bought or services supplied to a business. These include inventory, goods, electricity, telephone.
• The business will pay INPUT VAT if these items are provided by VAT vendors
• If the business is a VAT vendor, the business will claim the INPUT VAT back from SARS

Question 10

How is input VAT recorded in the books?

Answer 10

DR
DR
CR
(Two DR’s and a CR)

Question 11

How is input VAT an asset? (3)

Answer 11

1. Business A has paid for an expense which includes
   VAT.
2. Business A will claim the input VAT back from SARS and expects to get benefit in the form of cash when the input VAT is refunded by SARS.
3. The VAT portion is not part of the expense this money will be claimed back from SARS.

Question 12

How does VAT affect the statement of comprehensive income of a VAT vendor, i.e income and expenses ?

Answer 12

Income: output Vat collected from income earned is paid over to SARS and is not included in income figures
Expenses: Input VAT paid on expenses incurred is claimed back from SARS and is not included in expenses figures

Question 13

How are drawings affected with VAT?

Answer 13

DR Drawings (E)
      CR Inventory (A)
       CR SARS (VAT) (A/L)

Question 14

True or false, only cash drawings are taxed

Answer 14

False, cash drawings are not taxed, while inventory and other drawings are