Day: September 11, 2019

A VAT-registered sole trader has the following VAT-inclusive transactions for a three-month VAT period.

• Sales £11,000
• Purchases for re-sale £5,500
• Other purchases £1,100

If the rate of VAT is 10%, all sales are liable to VAT and VAT can be reclaimed on all purchases, the sole trader’s VAT liability for the period is ….

Select ONE answer:

1. £340
2. £390
3. £400
4. £440

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

Sales incl. VAT = £11,000
VAT on sales = £11,000/ 110 * 10 = £1,000

Purchases incl. VAT = £5,500 (for re-sale) + £1,100 (other purchases) = £6,600
VAT on purchases = £6,600 / 110 * 10 = £600

VAT liability = VAT on sales – VAT on purchases = £1,000 – £600 = £400
Alternatively, this may be solved as follows: Value added (incl. VAT) = £11,000 – £6,600 = £4,400 VAT incl. in Value added (incl. VAT) = £4,400/ 110 * 10 = £400

1. Incorrect
2. Incorrect
3. Correct
4. Incorrect

 

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