Question

A shoe dealer purchased net Birr 8,000 worth of shoes from a shoe company.

a Find the amount it is to pay the company including VAT.
b
If the dealer sold the shoes for Birr 12,000, find the amount of VAT liable to
the dealer.​

Answer 1

Explanation:

A) The dealer bought Birr 8000 at 7% tax.

Total amount to be paid = cost price (1 + r%)

r = 7% = 0.07

Total amount to be paid
`= 8000 * 1.07 =\texttt {Birr} \ \ {8,560}`

B) To find the VAT, it is the difference between the tax paid when the good was bought and the tax put on it after it was sold.

Tax paid when the shoes were bought = 7% of cost price

`= 7 \% * 8,000 = \texttt {Birr} \ 560`

Tax paid when the shoes were sold = 9% of selling price

`= 9 \% * 12,000 = \texttt {Birr} \ 1,080`

VAT = tax recovered on sale - Tax paid on purchase

`\texttt {VAT} = 1080 - 560 = \texttt {Birr}\ 520`