Basildvalour:
Good day NairaLanders

A friend who recently underwent a job interview as an Accounts Officer in a growing Telecoms firm narrated what he encountered with a question he was asked to tackle during the course of the interview and now he fears that the question could cost him the job.

Here it is:

A marketer who sells ball point pens (assuming it is a VATable commodity) bought 100units of the product from a manufacturer at #15 per unit.

He sold the 70units at #18 per unit (VAT Inclusive); sold another 20units at #20 per unit (VAT Inclusive) and sold the remaining units at half the cost price because they were damaged (VAT Inclusive).

NOTE: In Nigeria, VAT is fixed at 5%


His tax payable is 10%.

Calculate the marketer's take home profit (that is, profit after tax).

If you were him, what would your answer be? Let's see it.

talk2odim:





take home profit is N61.50k

Basildvalour:
Thanks for the response but would love you to show your computation procedure before arriving at that...thanks

talk2odim:


Cost price of the pen; N15 x 100= N1500

Sales:
1. N18 x 70 pens = N1,260
2. N20 x 20 pens = N 400
3. N7.50 x 10 pens = N 75 ( where N7.5 is half of the cost price and the balance of pens id 10 units)

total: 100 pens N1,735

less: 10% vat ie N173.50 = N1,561.50

Net profit: N1,561.50 - N1,500 = N61.50

Basildvalour:
Good day NairaLanders

A friend who recently underwent a job interview as an Accounts Officer in a growing Telecoms firm narrated what he encountered with a question he was asked to tackle during the course of the interview and now he fears that the question could cost him the job.

Here it is:j
A marketer who sells ball point pens (assuming it is a VATable commodity) bought 100units of the product from a manufacturer at #15 per unit.

He sold the 70units at #18 per unit (VAT Inclusive); sold another 20units at #20 per unit (VAT Inclusive) and sold the remaining units at half the cost price because they were damaged (VAT Inclusive).

NOTE: In Nigeria, VAT is fixed at 5%


His tax payable is 10%.

Calculate the marketer's take home profit (that is, profit after tax).

If you were him, what would your answer be? Let's see it.

Basildvalour:
Oh! guess there was a complication with the way you understood the question. There are two categories of tax there: VAT which is charged at 5% and tax on profit which was charged at 10%. Guess you will have to re-work.

talk2odim:



reviewing: kindly disregard some aspects of the first solution. i was multi tasking and just took time to read through again.



total sales = N1,735.00

Less: VAT of 5% = N 86.75.
balance on sales: = N 1,648.25

less: Cost price of pens: N1,500
Gross Profit: = N148.25
Less 10% tax = N133.425 (net profit)

Basildvalour:
Now, here is the twist...The question now is, who should pay the VAT?

The marketer or the consumer?

dejt4u:
I got N148.25k

talk2odim:

I believe it is the customer.....

talk2odim:

u haven't accounted for the 10% income tax.....

FriedPlantain:
Answer

talk2odim:



reviewing: kindly disregard some aspects of the first solution. i was multi tasking and just took time to read through again.



total sales = N1,735.00

Less: VAT of 5% = N 86.75.
balance on sales: = N 1,648.25

less: Cost price of pens: N1,500
Gross Profit: = N148.25
Less 10% tax = N133.425 (net profit)

Basildvalour:
Why did you place all the VAT burden on the marketer, which will be borne by the consumer?

ednut1:
i believe this happend to u not your friend mr man , ur question says inclusive of tax, the customer has paid the vat. the marketer or his company has to remit it to the government shikena

Basildvalour:
If it is the customer like you said, then why is VAT deducted from his sales proceeds and never added back?

ednut1:
i believe this happend to u not your friend mr man , ur question says inclusive of tax, the customer has paid the vat. the marketer or his company has to remit it to the government shikena

Basildvalour:
Why did you place all the VAT burden on the marketer, which will be borne by the consumer?

talk2odim:

Because the question says "VAT inclusive" and VAT goes to the government.....

Basildvalour:
Oh! Am running my second degree programme for now... I told him something similar but he said, "what if the money is not remitted, who will know and for this course, the VAT should have been added to the cost of the pens bought by the marketer and received by the manufacturer."

talk2odim:

Because the question says "VAT inclusive" and VAT goes to the government.....

Basildvalour:
will it be correct to say that the manufacturer of the pens paid the government, the marketer paid the manufacturer and the consumer paid the marketer?

Basildvalour:
Now, here is the twist...The question now is, who should pay the VAT?
The marketer or the consumer?

GANDALF1:

VAT is an abbreviation for Value Added Tax. It simply means the tax that a user will have to pay to the government for using a raw material that has been improved on by a manufacturer.
The manufacturer purchased the plastic + ink and added value by turning them into ballpoint pens. His unit sale price of #15/each is inclusive of his cost price, profit and value added tax.
Your marketer added value by transporting the pen and storing it. Hence the 5% VAT he is collecting and must remit to government.
If you purchase the pens and use them to create a back-to-school kit for kids, you have added value and authorised to collect VAT and remit to Government.
So in reality, everybody pays/remits VAT at their end.