Question

QUESTION 3 Ms. Rennet is a retired advocate She always wanted to be a business woman, her, she decided to start a business which specialises in selling handbags but did not have the time to fulfil her dream with the money that was paid out to Ms Rennet buys the bags directly from the factory. Ms. Rennet must pay VAT (Value Added Tax) to the factory for the bags. The factory has to pay the VAT to SARS (South African Revenue When customers buy bags from Ms. Rennet they pay VAT to her and she Service). has to pay VAT to SARS. PLEASE NOTE: Ms. Rennet will not pay all the VAT that she receives from her customers to she received from her customers and what she paid to the factory. 3.1 Ms. Rennet buys 500 handbags from the factory at R 120 each (excluding VAT) She then sells the handbags to her customers for R 190 each (VAT inclusive) T the factory has to pay to SARS for the bags that​

Answer 1

Value Added Tax, VAT, is a tax for consumption that is added to the price of an item at each selling point that there is a difference in value between the selling and purchasing of an item or service

1. The value of VAT the company has to pay to SARS for the bags Mrs. Rennet bought is R9,000

2. The amount of VAT Mrs. Rennet receives from her customers for the bag payment is approximately R12,391.3

3. The amount of VAT she will pay to SARS is approximately R3,391.3

The reason the above values are correct is as follows:

The known parameters in the question are;

Number of handbags Mrs Rennet buys, n = 500

The cost of each handbag at the factory, CP = R120

The price at which she sells the handbags, SP = R190

The South African VAT rate for registered vendors for the supply of goods and services for the year 2021 from online sources, r = 15%

The VAT she paid to SARS = VAT received from customers — VAT paid to the factory

1. Required:

The amount in $VAT_c$ payment the factory has to pay to SARS

Solution:

The total cost of the handbag Mrs Rennet buys from the factory, C = n × CP

Plugging in the values of n, and CP, we have;

C = 500 × R120 = R60,000

The total cost of the handbag Mrs Rennet buys from the factory, C = R60,000

The amount of $VAT_c$ = r × C

Where;

r = 15% = 0.15

C = R60,000

$\mathbf{VAT_c}$ = 0.15 × 60,000 = 9,000

The amount in $VAT_c$ payment the factory has to pay to SARS = R9,000

2. Required:

The amount Mrs Rennet receive from her customers as VAT

Solution:

The amount of VAT Mrs. Rennet receives from her customers is found as follows;

The selling price is inclusive of VAT, SP = R190

Let X represent the selling price, exclusive of VAT we have;

X × (1 + 0.15) = 190

X = 190/(1 + 0.15) = $165\frac{5}{23}$

The amount Mrs. Rennet receives as VAT, $VAT_s$ = n × (CS - X)

$\mathbf{VAT_s}$ = 500 × (190 - 190/(1 + 0.15)) = $12,391\frac{7}{23}$ ≈ 12,391.3

The amount Mrs. Rennet receives as VAT, $VAT_s$ ≈ R12,391.3

3. Required:

The amount Mrs. Rennet has to pay to SARS for the VAT she receives from her customers

Solution:

The amount Mrs. Rennet has to pay to SARS as VAT, $VAT_p$ = $\mathbf{VAT_s}$ - $\mathbf{VAT_c}$

$VAT_p$ ≈ 12,391.3 - 9,000 = 3,391.3

The amount she pays to SARS as VAT, $VAT_p$ ≈ R3,391.3

The VAT is paid for ultimately by the customer at retail

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