Question

Africa Traders, a registered VAT vendor, buys and sells hand sanitisers. The VAT rate is 15%. All goods are sold at a constant mark-up of 32% and the entity uses the periodic inventory system. The creditors control balance on 1 February 2020 was R19 500

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