3.5 Indicate which statement is/are correct. 1. According to the invoice basis VAT is due when the invoice is issued. 2. A vendor can claim a reduction in VAT in the event of bad debts. 3. According to the receipt's basis VAT is only due when cash is received either in full or in part. 4. Fee income or services fee for services rendered is subject to VAT. A. All the statements are correct. B. Only 2 and 3 are correct. C. Only 1, 2 and 4 are correct. D. Only 2 and 4 are correct. 3.6 Which is the correct definition of bi-monthly payments? A. Payment made once every two months. B. Payment is made twice a month. C. Payment is made once every month. D. Payment is made only when money is received. 3.7 Which statement is true? A. VAT OUTPUT is an asset account. B. VAT OUTPUT is VAT receivable from SARS. C. VAT INPUT is an asset account. D. VAT INPUT is a liability account. 3.8 The selling price of an article is R736 (VAT inclusive). The mark-up on this product is 60% on cost. The correct VAT amount is: A. R96 B. R110 C. R640 D. R138
Answer (1)
Let's address each part of the question one by one:
3.5 Indicate which statement is/are correct:
According to the invoice basis, VAT is due when the invoice is issued.
A vendor can claim a reduction in VAT in the event of bad debts.
According to the receipt's basis, VAT is only due when cash is received either in full or in part.
Fee income or services fee for services rendered is subject to VAT.
Analysis:
Statement 1 : This is correct. Under the invoice basis, VAT becomes payable when the invoice is issued, regardless of whether the payment has been received.
Statement 2 : This is correct. Vendors can claim a reduction in VAT if a sale results in a bad debt since no actual payment was received.
Statement 3 : This is correct. Under the receipt basis, VAT is due only when cash is received, either fully or partially.
Statement 4 : This is correct. Fee income or service fees for services rendered are subject to VAT.
Correct Answer : A. All the statements are correct.
3.6 Which is the correct definition of bi-monthly payments?
A. Payment made once every two months.
B. Payment is made twice a month.
C. Payment is made once every month.
D. Payment is made only when money is received.
Analysis:
"Bi-monthly" can be confusing because it could refer to two different payment frequencies. However, most commonly, it refers to payments made once every two months.
Correct Answer : A. Payment made once every two months.
3.7 Which statement is true?
A. VAT OUTPUT is an asset account.
B. VAT OUTPUT is VAT receivable from SARS.
C. VAT INPUT is an asset account.
D. VAT INPUT is a liability account.
Analysis:
VAT OUTPUT refers to VAT that a business has added to its sales invoices. This is a liability because it represents VAT that must be paid to the tax authorities.
VAT INPUT is the VAT that a business has paid on its purchases. It is an asset because it can be reclaimed from the tax authorities.
Correct Answer : C. VAT INPUT is an asset account.
3.8 The selling price of an article is R736 (VAT inclusive). The mark-up on this product is 60% on cost. The correct VAT amount is:
Steps to Find the Correct VAT Amount:
Determine the VAT rate : Assume a common VAT rate, e.g., 15%.
Calculate VAT exclusive price :
Let the VAT exclusive price be x .
x + 0.15 x = 736
Solve for x :
1.15 x = 736
x = 1.15 736 ≈ 640
Calculate VAT amount :
VAT amount = Selling Price - VAT exclusive price
= 736 − 640 = 96
Correct Answer : A. R96
