Chapter 6 – Accounting for VAT - ResearchGate › Sample+pages+from+book › c... › Sample+pages+from+book › c...PDFDuring the quarter ending 31st December 2019 an organisation paid input VAT of €10,500. The total sales ... Date Debit. € ... The Statement of
VAT and Output VAT VAT is not directly paid by the customer to the government. An intermediary is used, which is normally the retailer. These firms face two types of VAT, which are the input VAT and the output VAT. The accountant needs to distinguish between these two types of VAT because they have a different impact on the VAT that the organisation needs to pay or receive from the government.
Input VAT consists of VAT that the organisation paid for goods and services received from individuals or firms. Output VAT comprises the VAT that the organisation charges to the customer. The firm can reclaim the input VAT paid unless it is VAT exempt. VAT exempt organisations are those firms that cannot charge VAT to customers. These are normally small organisations that generate a low amount of sales and thus the law allows them to be exempt from VAT. This provides a price advantage to these organisations because they can charge a lower price to customers.
Example: Computation of VAT and Distinction between Input and Output VAT
During the quarter ending 31st December 2019 an organisation paid input VAT of €10,500. The total sales made by the firm during this quarter amounted to €118,000. This is inclusive of 18% VAT. Required: Determine the output VAT and the total VAT that the firm needs to pay to the government.
The input or output VAT can be calculated by using the following formula: Net Amount + VAT = Gross Amount (Vat inclusive) 100% + 18% = 118% 𝑂𝑢𝑡𝑝𝑢𝑡 𝑉𝐴𝑇 = €118,000 𝑥
18% = €18,000 118%
Output VAT
€18,000
Input Vat
€10,500
Vat Payable to the Government
€7,500
6.3 VAT on Assets and Liabilities Numerous assets acquired by an organisation are subject to VAT, such as motor vehicles and machinery. Moreover, when the firm acquires goods on credit, the amount payable to the supplier is inclusive of VAT.
Example: Input VAT on Assets Acquired
Peter Muscat purchased a motor van by cheque costing €22,000 on 1st November 2019. This is inclusive of 18% VAT. Required: a) Determine the input VAT charged on the motor van. b) Reflect this transaction in the respective accounts.
The same equation utilised in the previous example will be used in order to determine the input VAT.
𝐼𝑛𝑝𝑢𝑡 𝑉𝐴𝑇 = €22,000 𝑥
18% = €3,356 118% Motor Van Account
Date 1 Nov.
Debit Bank (a)
€
Date
Credit
€
18,644 Bank Account 1 Nov. 1 Nov.
Motor Van (a)
18,644
VAT (b)
3,356
VAT Account 1 Nov.
Bank (b)
3,356
Notes: a) The amount excluding VAT (€22,000 - €3,356) is reflected in the motor van account. b) The input VAT paid is shown separately in the bank account and it is reflected in the VAT Account. In the VAT account one includes both the input and output VAT.
Chapter 11 – The Bank Reconciliation Statement 11.5 Procedure for preparing the Bank Reconciliation Statement The steps below should be taken when preparing a bank reconciliation statement: Step 1 – tick off similar amounts that appear on the debit side of the cash book (bank column) to those on the credit side of the bank statement. Step 2 – tick off similar amounts which appear on the credit side of the cash book (bank column) to those on the debit side of the bank statement. Note: the unticked items both on the debit and credit side of the cash book (bank column) and bank statement represent the items which are causing the difference between the two balances. These are the items that need to appear in the cash book or bank reconciliation statement. Step 3 – update the bank balance present in the cash book by reflecting the unticked items that are shown in the bank statement. The items on the credit side of the bank statement should be posted on the debit side of the cash book, while the items on the debit side of the bank statement should be recorded on the credit side of the cash book. Transactions are considered on the opposite side because the bank and the organisation view them from different perspectives, as already noted in section 11.2. Step 4 – prepare the bank reconciliation statement by starting with the balance as per updated cash book (bank balance).
Step 5 – add the following in the bank reconciliation statement: Items which have been deducted in the cash book, but which have not been deducted in the bank statement (that is the unticked items on the credit side of the cash book). These are commonly known as unpresented cheques. Step 6 – subtract the following in the bank reconciliation statement: Items which have been added to the cash book, but which have not been included in the bank statement (that is unticked items on the debit side of the cash book). These are normally referred to as bank lodgements. Step 7 – the resulting figure, which is known as the balance as per bank statement should correspond to the last balance present in the bank statement.
Chapter 22 – Financial Statements of Companies 22.5 The Statement of Financial Position of Limited Companies The Statement of Financial Position of a company would appear as follows: Company name Statement of Financial Position as at ……………. Notes
€’000
€’000
€’000
Non-Current Assets: Intangible Non-Current Asse
