Answer to Question #240315 in Accounting for KARABO

Question

Africa Traders is not a registered VAT vendor and buys and sells furniture. Africa Traders sold a dining room table for R3 400. The mark-up percentage on cost is 25%

Answer 1

Sales = Cost + mark-up

When calculating cost and sale price, VAT is normally excluded.

Therefore, we start by first eliminating VAT from the sales:

Sales inclusive of 15$\%$ VAT = 1,610

Sales exclusive of 15$\%$ VAT = $\frac{100}{115} \times 1,610 = 1,400$

Now, determine cost:

Cost + mark-up = Sales

100$\%$ + 20$\%$ = 120$\%$

100$\%$ + 20$\%$ = 1,400

Therefore:

Cost of sales = $\frac{100}{120} \times 1,400 = 1,166.67 = 1,167$

The cost of sales for this transaction = R1,167