Question

Date                      
                      
01/01/2018   Purchased Wooden Wardrobes worth £ 5,000 on credit from the following entities, the credit limit is 30 days and if the payment is made within 30 days, a discount of 3% of the purchase value will be offered. The amount is inclusive of VAT.                  
                      
                      
   Entity Name   "Amount
£"              
   Woodworks Limited   3,000               
   Woaks Interiors   2,000               
                      
                      
01/10/2018   Placed an order for Wooden beds from Woaks Limited at the value of £ 5,000, the value is inclusive of VAT.                  
                      
                      
15/01/2018   Made a partial payment of £ 1,500 to Woodworks Limited and 1,000 to Woaks Limited.                  
                      
                      
18/01/2018   Recceived Wooden beds from Waoks Limited ordered on 10/01/2018                  
                      
                      
25/01/2018   Wardrobes worth £ 1,000 is damaged and returned to Woodworks Limited.                  
                      
                      
31/01/2018   Create a provision of discount receive at the rate of 2% on the outstanding balances of Woodworks Limited, Woaks Limited.                  
                      

Journal entries for the above transaction, how VAT will be treated in entries.

Answer 1

Answer - In the question, rate of VAT is not provided. Let us assume that VAT is 10%.

Find below the journal entries including assumption of VAT:

Date - 01/01/2018

1) Wooden Ward robes purchases ..A/c Dr 2,727

VAT Input A/c .........................................Dr 272

To Wood work Limited A/c 3,000

(Purchase of ward robes from Wood Work Limited inclusive of VAT)

2) Wooden Ward robes A/c....Dr. 1,818

VAT Input A/C.........................Dr 182

To Woaks Interiors A/c 2,000

(Purchase of ward robes from Woaks Interior A/c)

Date - 15/1/2018

Entry for Partial Payment:

a) Wood works Limited...A/c Dr 1,500

Woaks Limited A/c.................Dr 1,000

To Bank A/c 2,500

(Being partial payment made)

Date - 18/01/2018

1) Purchase of Wooden beds

a) Wooden beds purchase A/c..............Dr 4546

VAT Input A/c........................................Dr 454

To Woaks Limited 5,000

Date - 25/01/2018

1. Wardrobes worth £ 1,000 is damaged and returned to Woodworks Limited.  

- Receivable Woodworks Limited A/c...........Dr 1000

To Wardrobes purchases return A/c............ 910

To VAT Input reversal A/c............... 90

(Being entry of purchase return and receivable position is recognized)

Date - 31/01/2018 - provision of discount receive at the rate of 2% on the outstanding balances of Woodworks Limited, Woaks Limited.

- Total transaction with Wood works limited is 2000 (3000 of wardrobes less return of 1000) @ 2% discount is:

a) Woodworks Limited A/c....Dr 40

To Discount 40

- Total transaction with Woaks limited is 7000 (2000 of wardrobes plus 5000 of bed) @ discount of 2%:

b) Woaks Limited A/c....Dr 120

To Discount 120