VAT (Value Added Tax)....Manufacturer A sells a washing machine to a trader B for Rs 12,500. Trader B sells it to a trader C at a profit of Rs 800 and trader C sells it to a customer at a profit of...

VAT (Value Added Tax)....

Manufacturer A sells a washing machine to a trader B for Rs 12,500. Trader B sells it to a trader C at a profit of Rs 800 and trader C sells it to a customer at a profit of Rs 1,300. If the rate of VAT is 8% , find:

i) the amount of VAT received by the state govt on the sale of this machine,

ii) the amount that the consumer pays for the machine.

Asked on by archishrma

3 Answers | Add Yours

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

The total amount of VAT paid should be Rs 1168.  The final buyer should be paying Rs 22968 for the washing machine.  Here is how to derive this answer:

A sells the washing machine to B for 12500 plus Rs 1000 in VAT (12500*.08).  So B pays Rs 13500.

B adds to that Rs 800 of profit and sells it to C.  The VAT on this transaction is 800*.08 = 64.  So now the total VAT so far is 1064.  The price that C pays is 13500 + 800 + 64 = 21564.

C adds Rs 1300 to the price, making 22864.  He pays VAT on the 1300 (1300*08 = 104).  So now the total VAT is 1168 Rupees.  22864 + 104 = 22968

neela's profile pic

neela | High School Teacher | (Level 3) Valedictorian

Posted on

The manufacturer sells the washing machine at Rs 12500 to B. So Rs 12500 is incusive of 8% Vat.

B should get  a profit of  Rs 800 and sell at a price which includes that vat also . So he sells the WM at Rs [12500+800(1+8/100)]

Similarly C should sell for price with profit Rs 1300 means his selling price  including a Vat of Rs1300*8/108 should be

Rs[12500+800(1+8/100)+1300(1+8/100)] = Rs(12500 +2100*108/100)= Rs(12500+2468) = Rs14768 which is inclusive of 8%

Therefore the 8% included VAT paid is 14768*8/108 = Rs 1093.93 of which

12500*8/108 =  925.93 is paid by manufacture,

(800+8%800)*8/108  = Rs 64 Paid by B  and

(1300+8%of1300)*8/108 = Rs 104 is paid by C.

And the consumer pays 925.93+64+104 = Rs1093.93 VAT (through the sellers to the the government)  which is included in the price Rs14768.

Here, selers pay the VAT to government, but they recover it from the consumer.

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