Day: September 15, 2019

During an accounting period, a VAT-registered firm incurred advertising expenditure totalling £12,500, including VAT at the rate of 25%.

The charge for advertising which should be shown in the firm’s profit and loss account for the same period is …

Select ONE answer:

1. £9,375
2. £10,000
3. £15,000
4. £15,625

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 2

1. Incorrect
2. Correct – In cases where VAT is recoverable, expenses should be shown in the profit and loss account net of VAT. Therefore, the amount of the expense which should be shown in this case is £12,500/ 125 * 100 = £10,000. (£10,000 + 25% = £12,500).
3. Incorrect
4. Incorrect

 

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