Question

An article was bought by a distributor for Rs. 15,000 (excluding tax). He sold it to a trader for Rs. 20,000. The trader sold the article to a retailer for Rs. 22,000 (excluding tax). Find the VAT paid by the distributor and by the trader if the tax rate was 10 per cent.

Answer 1

(i) For the distributor:
Cost of the article = Rs. 15,000
Tax paid = 10% of Rs. 15,000
= Rs. $\frac{10\times 15,000}{100}$ = Rs. 1,500
Selling price of the article = Rs. 20,000
Tax charged = 10% of Rs. 20,000
= Rs. $\frac{10\times 20,000}{100}$ = Rs. 2,000
$\therefore$ VAT paid by distributor = Tax recovered on sale -Tax paid on purchase
= Rs. 2,000 - Rs. 1,500 = Rs. 500
VAT paid by distributor = Tax on (S.P. -C.P.)
= 10% of (Rs. 20,000 - Rs. 15,000)
$=\frac{10}{100}\times$Rs. 5,000 = Rs. 500.
(ii) For the trader:
Cost of the article = Rs. 20,000 [$\because$ S.P. of distributor = C.P. of trader]
Tax paid = 10% of Rs. 20,000 = Rs. 2,000
Selling price of the article = Rs. 22,000
Tax charged = 10% of Rs. 22,000 = Rs. $\frac{10\times 22,000}{100}$ = Rs. 2,200
$\therefore$ VAT paid by the trader = Tax recovered on sale -Tax paid on purchase
= Rs. 2,200 - Rs. 2,000 = Rs. 200.
Alternatively :
$\therefore$ VAT paid by the trader = Tax on (S.P. - C.P.)
= 10% of (Rs. 22,000 - Rs. 20,000)
$=\frac{10}{100}\times$Rs. 2,000 = Rs. 200.