ACCA Applied Knowledge · Financial Accounting · Sales and purchases
Dunmore Co has a sales tax balance brought forward of $0. During the month, sales (net of tax) were $80,000 and purchases of inventory (net of tax) were $50,000, with sales tax at 20% on both. Sales tax on a $5,000 (net) delivery van purchase was also paid. What is the amount payable to the tax authority for the month?
The amount payable is $5,000. Output tax of $16,000 on sales is reduced by recoverable input tax of $11,000 on both inventory purchases and the van, since input tax on non-current assets is also recoverable for a registered trader.
- A$6,000
- B$5,000Correct
- C$0
- D$7,000
Explanation
Output tax is 20% x $80,000 = $16,000. Input tax is 20% x ($50,000 + $5,000) = $11,000. Net payable is $5,000. Ignoring the tax on the van gives $6,000.
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