AC120 lecture 22

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AC120 lecture 22

• Completion of SSAP 4
• Accounting for VAT

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Example 4

• Company A buys a fixed asset for 1 million.
  Depreciation policy is 25 straight line
• The company receives a government grant of
  600,000 as a contribution towards the cost of
  the asset
• Grant income and expenditure amounts received and
  paid respectively before the financial year end.
• How should company A account for the grant and
  the fixed asset?

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Accounting for VAT

• SSAP 5, issued in 1974
• Value Added Tax is a tax charged on the supply of
  most goods and services
• Some trades and some firms are exempt depending
  on type of trade or size of business

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Accounting for VAT

• VAT is borne by the ultimate consumer
• If a business is not the final consumer, the
  accounts of the business reflect its role as
  collector on behalf of the revenue authorities

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Example 1

• Organisation A is registered for VAT
• Sales of goods on credit to J Bloggs 100
• Sales of goods for cash to J Bloggs 200
• Purchases of goods on credit from N Maguire 50
• Purchase of fixed asset 1,000
• Amounts dont include VAT. Applicable VAT rate
  is 10.

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Example 2

• Organisation A is not registered for VAT
• Sales of goods on credit to J Bloggs 100
• Sales of goods for cash to J Bloggs 200
• Purchases of goods on credit from N Maguire 50
  N Maguire is registered for VAT!
• Purchase of fixed asset 1,000 supplier is not
  registered for VAT
• Relevant amounts dont include VAT of 10

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References

• Wood, chapter 20
• Thomas, chapter 31