HomeAccounting Grade 12Value Added Tax VAT...

Value Added Tax VAT Grade 12 Notes Accounting Study Guide pdf

Value Added Tax VAT Grade 12 Notes Accounting Study Guide. The standard rate of VAT is 15%. Very few business transactions carried out in South Africa are not subject to VAT. The tax is collected by businesses that are registered with the SARS as ‘vendors’ on all taxable supplies throughout the production and distribution chain

Value Added Tax. It is a consumption tax charged on taxable goods, services immovable property of any economic activity whenever value is added at each stage of production and at the final stage of sale.

Value Added Tax VAT Grade 12 Notes Accounting Study Guide pdf

Value Added Tax (VAT) is the tax charged on goods and services supplied and is charged at the current rate (standard rate) of 14%. VAT is an important part of the income generated by the government to cover government expenditure.
Who has to register as a VAT Vendor?
A person or business that supplies goods or services can register as a vendor (trader).
All businesses with a turnover of more than R1-million must register as a vendor (trader). This is COMPULSORY REGISTRATION.
Businesses with a turnover of less than R1-million can register if they want to. This is VOLUNTARY REGISTRATION.
The benefits of registering as a VAT Vendor
The business is able to claim back the amount of VAT paid on goods and services bought (VAT input).
Items on which VAT is not charged
Zero-rated items: Items charged at 0% VAT, but this can be changed by the government at any time. Examples are fresh fruit and vegetables, brown bread, milk, maize, rice, lentils and cooking oil.
VAT-exempt items: Items on which no VAT is charged. Examples are interest, rates, export services, educational services and childcare services.
VAT input
VAT input is the VAT paid by a business on the purchases of goods and services (which can be claimed back from SARS).
VAT output
VAT output is the VAT collected by the business on the sale of all goods and services (which needs to be paid over to SARS).

7.1 VAT calculations

VAT output – VAT input = amount payable to SARS (see example 2, page 72)
VAT inclusive calculations: When VAT is included in an amount
(see example 1 below)          (VAT inclusive) the calculation for VAT will be the amount × 14
114
VAT exclusive calculations: When VAT is excluded (VAT exclusive)
(see example 1 below)            the calculation for VAT will be the amount × 14
100
Worked example 1: Trendy Suppliers
Trendy Suppliers uses a fixed mark up of 40% on cost. The business is registered as a VAT vendor. The current VAT rate is 14%.
Calculate the following:

  1. VAT charged by Trendy Suppliers on one dress. [3]
  2. Selling price of one dress exclusive of VAT. [6]
  3. VAT charged to the customer on one dress. [3]
  4. VAT charged by Trendy Suppliers on one pair of jeans. [3]
  5. Selling price of one pair of takkies inclusive of VAT. [9]

Information
The following items were purchased during the month from Trendy Suppliers.
100 dresses @ R285 each (VAT inclusive)
80 pairs of jeans @ R180 each (VAT exclusive)
60 pairs of takkies @ R110 per pair (VAT exclusive)

Answers to worked example 1

  1. VAT charged by Trendy Suppliers on one dress. [3]
    R285 ×14  = R35 (Remember: Inclusive is 14 ÷ 114)
    114
  2. Selling price of one dress exclusive of VAT.
    Cost price = R285 – R35 (VAT) = R250
    Selling price = R250 × 140 = R350 (Remember: Mark up = 40% on cost price)[6]
    100
  3. VAT charged to the customer on one dress:
    Selling price = R350 (as calculated in No 2 above)
    (Remember: Exclusive is 14 ÷ 100)
    VAT charged = R350 × 14 = R49 [3]
    100
  4. VAT charged by Trendy Suppliers on one pair of jeans:
    R1803 × 14  = R25,20 [3] (Remember: Exclusive is 14 ÷ 100)
    100
  5. Selling price of one pair of takkies inclusive of VAT:
    Cost price = R110
    Selling price = R110 × 140 = R154 (exclusive of VAT)
    100
    VAT = R154 × 14 = R21,56
    100
    VAT inclusive amount = R154 + R21,56 = R175,56 [9]

Worked example 2: Mizi Stores
Mizi Stores, owned by Mia Mizi, is registered for VAT.
Calculate the amount of VAT to be paid over to SARS for the period ending 28 February 2011. [17]

Information for this period ending 28 February 2011

  1. Total sales (cash and credit) (VAT inclusive) R60 000
  2. New computer bought (for office use) (VAT inclusive) R12 000
  3. Trading stock bought (VAT exclusive) R20 000
  4. Credit notes issued to customers (VAT inclusive) R 1 500

Answers to worked example 2

VAT outputVAT input
a) Total sales: 60 0003 × 14
114
R7 368,42
b) New computer bought: 12 000  × 14
114
R1 473,68
c) Trading stock bought: 20 0003 × 14
100
R2 800
d) Credit notes issued: 1 500 × 14
114
R184,21
R7 368,42R4 457,89
VAT payable to SARS:
R7 368,423 − R4 457,893 = R2 910,53
Total VAT output – Total VAT input = VAT payable to SARS

[17]

7.2 VAT Control Account

There are different formats of completing the Input and Output VAT accounts however the correct information does end up in the VAT Control account. It is not likely you will be asked to do the Input or Output VAT account in the examination. The VAT Control Account is more likely to be asked.
Learners need to be able to complete the VAT Control account with all the relevant transactions without completing the Input VAT Control and Output VAT Control accounts.

Format of possible entries in the VAT control account

GENERAL LEDGER        
Dr.                                                           VAT CONTROL ACCOUNT (CL)                                                        B                                        Cr.
2014
May 
 3 Debtors ControlDAJ 562014
May 
 1BankCRJ 4 200 
 8Discount allowed (claim VAT back from discount allowed amount) GJ8 2Debtors Control DJ1 400
 12Bad debts GJ28 9Discount allowed
(cancel the VAT claim )
 GJ 8
 4Bank CPJ700 10Drawings GJ 126
 6Creditors control CJ280 11Donations GJ 42
 5Petty cash PCJ21 7Creditors control CAJ 98
 31Balance c/d4781
58745874
2014
June
 1Balance b/d
  • VAT Control account can have a debit balance or a credit balance.
  • A debit balance means that SARS owes the business money and that your Input VAT was more than your Output VAT.
  • A credit balance means that the business owes SARS money.
Schematic illustration of how all the entries from Output VAT Account and Input VAT account are recorded in the VAT Control Account 
DR                                               OUTPUT VAT ACCOUNT ( )                       B      CR 
2014
May
31Debtors
Control
DAJ562014
May
31BankCRJ4 200
Discount allowed (claim VAT back from discount allowed amount) GJ 8Debtors
Control
DJ1400
Bad debts GJ 28Discount allowed (cancel the VAT claim)GJ8
VAT controlDrawingsGJ126
DonationsGJ42
  • The output VAT account is a current liability.
  • It is the amount owing to SARS
  • The account increases on the credit side
DR.                         INPUT VAT CONTROL         B     DR
2014
May
31BankCPJ7002014
May
31Creditors
control
CAJ98
Creditors controlCJ 280
Petty cashPCJ 21
  • The Input VAT account is a current asset.
  • It is the amount that SARS owes the business.
  • The Input VAT account increases on the debit side.
DR                                                                VAT CONTROL ACCOUNT ( )                                                B                                    CR
2014
May
31Debtors ControlDAJ562014
May
31BankCRJ4200
Discount allowed (claim VAT back from discount allowed amount) GJ 8Debtors ControlDJ1400
Bad debts GJ 28Discount allowed
(cancel the VAT claim)
GJ8
Bank CPJ 700DrawingsGJ126
Creditors control CJ 280DonationsGJ42
Petty cash PCJ 21Creditors controlCAJ98
Balance c/d 4781
 58745874
2014
Jun
1b/d4781

Ensure that you know all the possible transactions and how the transactions are recorded in the VAT Control account.

Conclusion of the vat control account with all possible entries 
Take into account that the VAT CONTROL ACCOUNT is done to establish if the amount collected on behalf of SARS is more than the amount claimed from SARS.

  • VAT COLLECTED IS OUTPUT VAT
  • VAT AMOUNT CLAIMED IS INPUT VAT

 

DR                                                                VAT CONTROL ACCOUNT ( )                                                B                                    CR
Debtors Control
(Cancel the output VAT claimed when goods are returned by debtors)
DAJ56Bank
(Cash sales: collect output VAT on behalf of SARS)
CRJ4200
Discount allowed (claim VAT back from discount allowed amount)
(SARS allows a business to claim back the VAT part of discount allowed when a debtor pays his account on time: Cancel output VAT)
 GJ 8Debtors Control
(Credit Sales: Collect output VAT on behalf of SARS)
DJ1400
Bad debts
(When a business experienced bad debts, SARS allows you to claim back the VAT part of bad debts: Cancel output VAT)
 GJ 28Discount allowed
(cancel the VAT claim)
(Cancel of the discount claimed on the RD cheque: output VAT)
GJ8
Bank
(Claim the VAT when goods are bought and paid for: Claim back Input VAT)
 CPJ 700Drawings
(Must charge VAT when owner takes stock for own use: Collect output VAT on behalf of SARS)
GJ126
Creditors control
(Claim the VAT when goods are bought on credit: Claim back Input VAT)
 CJ 280Donations
(VAT charged on donated stock: Collect output VAT)
GJ42
Petty cash
(Claim the VAT when goods are bought: with petty cash money: Claim back Input VAT)
 PCJ 21Creditors control
(Cancel the VAT when goods are returned back to supplier: Cancel input VAT)
CAJ98
Balance c/d 4781
 58745874
Balanceb/d4781

Below is a list of suggested past examination questions for extra practice:

TopicPaperQuestion
Calculations using General Ledger accountsNovember 20101.3
Concepts and calculationsFebruary/March 20121.1

 

 

Related blog posts

Accounting Grade 12 Textbooks Free Download

Accounting Grade 12 Textbooks Free Download. This stage of memory is limited in the amount of information it can retain. Information you receive in class must be written down or you will forget it. When...

Accounting Grade 12 Term 1 Revision Content And Revision Topics

Accounting Grade 12 Term 1 Revision Content And Revision Topics. This is for Accounting Grade 12 subject. The Grade 12 Accounting Term 1 study content will help you with your Accounting Subject Revisions, Tests, Exams, and Assignments.Accounting Grade 12 Term 1 Revision Topics...

Accounting Grade 12 Internal auditor report on procedures and internal controls in a public company Guide

An internal audit report is usually used by internal management to improve the operations, processes, or policies of the company. An external audit report is often required for an outside reason and is more often...

Accounting Grade 12 Balance Sheet and Notes Test | Questions and Answers

This is for Accounting Grade 12 subject. The Accounting Grade 12 Balance Sheet and Notes Test study content will help you with your Accounting Subject Revisions, Tests, Exams, and Assignments.A balance sheet is a financial statement that contains details of a company's...

Grade 12 Economics Foreign Exchange Markets Self Study Guide Free Download

The foreign exchange market (also known as forex, FX, or the currencies market) is an over-the-counter (OTC) global marketplace that determines the exchange rate...

2024 Grade 12 May/June NSC Examination Timetable

Grade 12 May/June NSC Examination Timetable. As the 2024 academic year moves forward, matric students in South Africa are gearing up for the mid-year...

Accounting Grade 12 Textbooks Free Download

Accounting Grade 12 Textbooks Free Download. This stage of memory is limited in the amount of information it can retain. Information you receive in...

An Analysis of South African Businesses Types and Their Market Share

South African Businesses Types and Their Market Share. The South African economy, known for its diverse economic structure, hosts a plethora of businesses from...

Accounting Grade 12 Term 1 Revision Content And Revision Topics

Accounting Grade 12 Term 1 Revision Content And Revision Topics. This is for Accounting Grade 12 subject. The Grade 12 Accounting Term 1 study content will help you with your Accounting Subject Revisions,...

Accounting Grade 12 Internal auditor report on procedures and internal controls in a public company Guide

An internal audit report is usually used by internal management to improve the operations, processes, or policies of the company. An external audit report is...

How are Market Prices Affected by Unemployment in the Economy of South Africa

How are Market Prices Affected by Unemployment in the Economy of South Africa. On this page we discuss how market prices are affected by...

Reasons Why the Circular Flow is not an Accurate Reflection of Economic Reality

The circular flow is a theoretical model that illustrates how money, goods, and services flow through an economy. The model depicts households, firms, and...

Selection Business Studies Grade 12 Study Notes

Selection Business Studies Grade 12 Study Notes. The selection process is a critical step in the recruitment process that involves evaluating and assessing candidates...

Quality of Performance Business Studies Grade 12 Study Notes

Quality of Performance Business Studies Grade 12 Study Notes. A quality management system (QMS) is a structured approach to ensuring that a company’s products...

Leadership and Management Business Studies Grade 12 Study Notes

Leadership and Management Business Studies Grade 12 Study Notes. Learners will be able to learn, as well as practicing answering common exam questions through interactive content,...

The role of Youth Economic Alliance

The role of Youth Economic Alliance Where lack of skills, poor access to finance and markets hinder business growth, the Youth Economic Alliance addresses this by...