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VALUE-ADDED TAX (VAT) Chuckle Traders is registered for VAT, although the annual turnover is less than R1 000 000 - NSC Accounting - Question 1 - 2022 - Paper 2
Question 1
VALUE-ADDED TAX (VAT) Chuckle Traders is registered for VAT, although the annual turnover is less than R1 000 000. The standard VAT rate is 15%. The business is own... show full transcript
Worked Solution & Example Answer:VALUE-ADDED TAX (VAT) Chuckle Traders is registered for VAT, although the annual turnover is less than R1 000 000 - NSC Accounting - Question 1 - 2022 - Paper 2
Step 1
Give ONE reason why Chuckles decided to register for VAT.
Answer
Chuckles decided to register for VAT in order to claim back input tax from SARS on his purchases. This means that for every eligible purchase he makes, he can reclaim the VAT paid, thereby effectively reducing his overall costs.
Step 2
Calculate the amount of VAT that is payable to SARS for the two-month period ended 30 April 2022.
Answer
To calculate the VAT payable:
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Calculate total VAT on sales:
Cash and credit sales (including VAT): R87 400 VAT from sales = Total Sales / (1 + VAT rate) * VAT rate
VAT from sales = R87 400 / 1.15 * 0.15 = R11 400
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Calculate total VAT on purchases:
Total Purchases Excluding VAT: R59 000 VAT on purchases = Total Purchases * VAT rate
VAT on purchases = R59 000 * 0.15 = R8 850
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VAT on drawings: VAT on drawings from Chuckles: R2 000
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VAT on returns from debtors: VAT on returns from debtors: R2 820
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VAT on discounts from suppliers: VAT on discounts received: R3 360
Now total the amounts: VAT Input: R8 850 + R2 000 + R2 820 + R3 360 = R16 030 VAT Output: R11 400
Payable VAT = Total Output - Total Input Payable VAT = R11 400 - R16 030 = -R4 630 Therefore, Chuckles is actually entitled to a VAT refund of R4 630.
Step 3
Chuckles uses the money collected for VAT to pay business expenses. He does not have sufficient cash to make the VAT payments on the due dates. What would you say to Chuckles? State TWO different/separate points.
Answer
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It is unethical and potentially illegal to use VAT collected for business expenses; this can lead to severe penalties from SARS if investigated. Proper management of funds is crucial.
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Chuckles should implement a proper budgeting system to manage cash flow and ensure that the VAT is set aside as it is collected, preventing the risk of not being able to make due payments.