Month: September 2019

If a firm produces only one product, product X, which is zero-rated for VAT purposes, then . . .

Select ONE answer:

1. VAT is payable by the firm on its sales of product X and VAT is recoverable by it on its purchases of raw materials used in the production of product X.
2. VAT is not payable by the firm on its sales of product X and VAT paid on purchases of raw materials used in the production of product X is recoverable.
3. VAT is not payable by the firm on its sales of product X and VAT is not recoverable on its purchases of raw materials used in the production of product X.
4. None of the above.

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

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

The answer is 2

1. Incorrect – As product X is zero-rated VAT is not payable on sales of this product.
2. Correct
3. Incorrect – This would be the case if product X was exempt from VAT, not zero-rated.
4. Incorrect

 

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A person is not obliged to register for VAT unless he has reason to believe that the total taxable turnover of his business activities will exceed, or has exceeded, the current registration limits . . .

Select ONE answer:

1. in any continuous twelve-month period.
2. in the next three-month VAT period.
3. in the twelve months ended on the previous 31 December.
4. in the most recent two-month VAT period.

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 1

1. Correct – The VAT registration limits apply to any continuous twelve-month period.
2. Incorrect – The only significance of a two-month period in relation to VAT is that this is the period for which most businesses make a VAT return.
3. Incorrect – 31 December, although the end of many firm’s accounting period, has no particular significance in relation to VAT for many businesses.
4. Incorrect – As for answer B above.

 

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Which of the following statements best describes the treatment of VAT in the accounts of a VAT-registered firm?

Select ONE answer:

1. VAT is an expense arising from the sale of goods and services.
2. VAT is normally a liability, calculated by reference to the purchases and sales of goods, services and other items.
3. VAT is levied on customers and is payable by them to the HMRC.
4. VAT is collected by firms from their customers and is retained by the firms.

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 – VAT is not an expense for a VAT-registered firm. Therefore VAT should not appear in the profit and loss account (revenues and expenses should be shown exclusive of VAT). VAT will either be owed to or be recoverable from, the HMRC. This will be shown in the Balance sheet.
2. Correct
3. Incorrect – Customers pay VAT to the firms from whom they buy goods and services – they do not pay VAT directly to the HMRC.
4. Incorrect – VAT is collected by firms from their customers – but on behalf of the HMRC – to whom it must be periodically remitted.

 

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The current standard rate of VAT is . . .

Select ONE answer:

1. 10%
2. 12.5%
3. 17.5%
4. 20%

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 4

1. Incorrect
2. Incorrect
3. Incorrect
4. Correct – The ‘standard’ rate of VAT varies from time to time. At the time of going to press it is 20%.

 

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Value Added Tax . . .

Select ONE answer:

1. is paid by the purchaser of goods and services, at the relevant rate, on the value added to them by their seller.
2. is collected by the HMRC on behalf of the government as value is added to goods and services.
3. is charged at the relevant rate by the sellers of goods and services on the value added by them.
4. None of the above.

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 – A VAT is paid by the purchaser of goods and services on the full price, excluding VAT, of those goods and services.
2. Correct
3. Incorrect – VAT is charged by vendors of goods and services on the full price, excluding VAT, of those goods and services.
4. Incorrect

 

This work is licensed under a Creative Commons Attribution 4.0 International License.