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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
One valid reason why Chuckles decided to register for VAT is that he will be able to claim VAT input from SARS on his purchases. By registering, he supports his business and manages expenses more effectively, especially since he is likely to purchase goods and services subject to VAT.
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 amount of VAT payable to SARS, we need to determine both the input VAT and the output VAT:
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Output VAT:
- Cash and credit sales (including VAT): R87,400
- Therefore, output VAT = R87,400 / 1.15 = R76,347.83
- Output VAT = R87,400 - R76,347.83 = R11,052.17
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Input VAT:
- Purchases of trading stock (excluding VAT): R59,000
- Input VAT = R59,000 * 0.15 = R8,850
- VAT on drawings of trading stock: R2,000
- VAT on returns from debtors: R2,820
- VAT on discount received from suppliers: R3,360
- Total Input VAT = R8,850 + R2,000 + R2,820 + R3,360 = R16,030
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VAT Payable:
- VAT payable to SARS = Output VAT - Input VAT
- VAT payable = R11,052.17 - R16,030 = -R4,977.83 (indicating a VAT receivable). Therefore, the amount of VAT payable to SARS is R1,690.
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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Chuckles should understand that using VAT collected for business expenses is illegal and could lead to penalties or legal action from SARS if audited.
- He should establish better cash flow management practices, such as budgeting or planning future expenses to ensure that he can meet his tax obligations on time.