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Question One: (25 marks) Al-Hawaj & Sons (AHS) is registered trader for VAT with NBR of Ministry of Finance of Bahrain
Question One: (25 marks) Al-Hawaj & Sons (AHS) is registered trader for VAT with NBR of Ministry of Finance of Bahrain. AHS is dealing with the supplies which are standard rated @5%, zero rated and exempt rated. Al-Hawaj is supposed to submit VAT returns on quarterly basis. Following are the transactions of 2020. July 10 Purchased 150 units of Item X from Ali @BD 100 each (list price) on cash. This item is standard rated at the time of purchase and zero rated at the time of sales. Trade Discount 20%. (3 Marks) July 13 Sold 150 units of Item X (zero rated at the time of sales) for BD 150 (list price) to Ahmad on credit. Trade Discount 10%. (2 Marks) July 14 Purchased 1000 units of Item Y from Rami @BD 50 each (list price) on credit. This item is standard rated supplies at the time of purchases and sales. Trade Discount 20%. (3 Marks) July 16 Sold 500 units of Item Y (Standard Rated Supplies at the time of sales) for BD 100 (list price) to Hanan on credit. Trade Discount 10%. (3 Marks) July 26 Sold 500 units of Item Y (Standard Rated Supplies at the time of sales) for BD 150 (list price) to Ahmad on cash. Trade discount was 10%. (3 Marks) August 8 Purchased 400 units of Item Z from Wafa @BD 100 each (list price) on cash. This item is standard rated supplies at the time of purchases and exempt rated at the time of sales. Trade discount was 10%. (3 Marks) August 29 Sold 200 units of Item z @200 each (list price) on credit to Hamdan. (2 Marks) December 31 Sold 200 units of Item Z @300 each (list price) on credit to Reem. Trade Discount 10%. (2 Marks) Assume that input credit claimed in books of account dated September 30, 2020 and VAT return is submitted on October 25, 2020 with VAT payment or refunded. (4 Marks) Instructions: Prepare the Journal entries for above transactions, date wise.
Expert Solution
Journal entry - Jul 10 :
Inventory - X A/c Dr - 12,000
Input VAT A/c Dr - 600
To Ali Alc - 12,600
(Being output being zero-rated sales, hence input tax on the same can be availed. Trade discount is generally recorded in purchases book/sales book and there be no separate journal entry)
Journal entry - Jul 13 :
Ahmad Alc Dr - 20,250
To Sales A/c - 20,250
(No separate journal entry for trade discount to be made. Hence sales recorded at 150 units at 150 BD minus 10%. Since this being a zero rates sale the same is not subjected to VAT)
Journal entry - Jul 14 :
Inventory Y A/c Dr - 40,000
Input VAT A/c Dr - 2,000
To Rami A/c - 42,000
(No separate journal entry for trade discount to be made. Hence recorded at 50 units at 1000 BD minus 20%. Since sales and purchases are subjected to the standard rate, hence VAT paid on purchases can be claimed)
Journal entry - Jul 16 :
Hanan A/c Dr - 47,250
To Sales A/c - 45,000
To Output VAT A/c - 2,250
(No separate journal entry for trade discount to be made. Hence sales recorded at 500 units at 100 BD minus 10%. Since sales are subjected to the standard rate, hence VAT on sales has been shown as output liability)
Journal entry - Jul 26 :
Cash A/c Dr - 70,875
To Sales A/c - 67,500
To Output VAT A/c - 3,375
(No separate journal entry for trade discount to be made. Hence sales recorded at 500 units at 150 BD minus 10%. Since sales are subjected to the standard rate, hence VAT on sales has been shown as output liability)
Journal entry - Aug 08 :
Inventory - Z A/c Dr - 39,600
To Cash A/c - 39,600
(No separate journal entry for trade discount to be made. Hence recorded at 400 units at 100 BD minus 10%. Since sales are exempt from this category, hence VAT paid on the same shall be cost to the company and cannot be transferred to Input VAT. Hence cost has been increased by (400*100*90%*10%=3,600)
Journal Entry - Aug 29
Hamdan A/c Dr - 40,000
To Sales A/c - 40,000
(Being exempt sales)
Journal Entry - December 31
Reem A/c Dr - 54,000
To Sales Alc - 54,000
(Being exempt sales with effect to trade discount)
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