Plz help....VAT problem..!The manufacturer 'P', the sales distributor 'Q', the wholesaler 'R' and the retailer 'S' are from the same state, where rate of VAT is 12.5%. The cost price of an item for...

Plz help....VAT problem..!

The manufacturer 'P', the sales distributor 'Q', the wholesaler 'R' and the retailer 'S' are from the same state, where rate of VAT is 12.5%. The cost price of an item for manufacturer 'P' is Rs. 280. Find the amount of VAT paid to the Government, if P sells to Q, Q sells to R and R sells to S. Also find the selling price of retailer 'S' assuming a profit of Rs. 15 at each stage of the selling chain.

 

Please post only the necessary steps essential for the working...Or you may explain the working in short... :)

The answers to the problem in my book are-

VAT paid to the Govt. = Rs 42.50

Selling price for retailer= Rs. 382.50

Expert Answers
pohnpei397 eNotes educator| Certified Educator

I hope this is not too late to be useful.

The steps you need to take are as follows:

  1. You need to be sure to note that the VAT on the first sale (P to Q) is Rs 295*.125 because of the need for the Rs 15 profit.  So the complete sale price in that transaction is 331.875 -- 295 + (295*.125).
  2. So then for the second transaction, you take the previous sale price and add 15.  So Q will want to sell for 346.875, but Q will have to add VAT.  The VAT is only on the added Rs 15. So that adds Rs 1.875 (15*.125) to the price.  So Q charges R  Rs 348.75.
  3. You do the same process for the sale from R to S.  R charges S 348.75 + 15 + 1.875 = 385.625
  4. And again for S to the customer.  S charges 385.625 + 15 + 1.875 = Rs 382.5, like you said it should be.

So your VAT was 36.875 for the first transaction, plus three more transactions where the VAT is 1.875 each.  That gets you the Rs 42.5 that you mention.

neela | Student

The VAT calulation is normally as a percentage  of the to included in the selling price.The manufacturer P sells to Q, Q to R and R to S.

The retailer S assumes a profit of 15 at each stage including himself in the selling chain, so he  adds 15*4 to 280 which becomes 340. Then he adds a vat, a 12.5 % of 340  = 340+42.5 = 382.50.

So, the VAT paid to the government is 42.50