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Recording Sale of Property and Equipment,

Illustration,

con’t Case 2: Assume that the typewriter was sold at P10,000. The entry to record the transaction is: Gain on sale of office equipment

Case 3: Assume that the typewriter was sold at P7,000. The entry to record the transaction is:

Cash

Accumulated Depreciation-Office Equipment Loss on sale of Office Equipment

Office Equipment Loss on sale of office equipment

Reminder Any gain on the sale of property and equipment is classified as other income because it is an income from a source which is not from the ordinary course of business operations. Any loss on the sale is classified as other expense in the functional income statement.

Marivic Valenzuela-Manalo 1 IVLE Lecture Notes on Value Added Tax (Vat) On Merchandise

Purchased and Sold Definition of Terms

Input Tax means the value-added tax due from or paid by a VAT-registered person in the course of his trade or business on importation of goods, or local purchase of goods or services, including lease or use of property, from a VAT-registered person Output Tax means the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered.

VAT Payable – is the excess of output tax over allowable input tax. It is payable to BIR.

Creditable Input Tax – is the excess of input tax over output tax. It serves as tax credit.

Formula of VAT payable

Output tax ( VAT on sales) P XXX Less: Input tax (VAT on purchases) XXX

VAT payable PXXX

Nature of VAT

• The value-added tax is an indirect tax. The amount of the tax may be shifted or passed on the buyer, transferee or lessee of the goods, properties or services.

Who shall file

1. A VAT-registered person; and

2. A person required to register as a VAT taxpayer but failed to register.

Ø This return/declaration must be filed by the aforementioned taxpayers for as long as the VAT registration has not yet been cancelled, even if there is no taxable transaction during the month or the aggregate sales/receipts for any 12-month period did not exceed the P1,500,000.00 threshold.

When to pay

Ø Monthly Vat Payable is paid not later than the 20^th day following the close of the month.

Ø Quarterly VAT Payable must be paid not later than the 25th day following the close of the quarter.

Marivic Valenzuela-Manalo 2 Where to file VAT Declaration

Ø The returns/declarations must be filed with any Authorized Agent Bank (AAB) within the jurisdiction of the Revenue District Office where the taxpayer is required to register. In places where there are no Authorized Agent Bank (AAB), the returns/declarations shall be filed with the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the revenue district where the taxpayer is required to register.

Rates and Bases of Tax

A. On Sale of Goods and Properties – twelve percent (12%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged.

B. On Sale of Services and Use or Lease of Properties – twelve percent (12%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties.

C. On Importation of Goods – twelve percent (12%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the basis of quantity or volume of the goods, the value added tax shall be based on the landed cost plus excise taxes, if any.

D. On Export Sales and Other Zero-rated Sales - 0%.

VAT EXCLUSIVE - Illustrative case:

Transactions Journal Entries DR Cr

1. Purchased

Account Receivable (18,000 x 1.12) Sales

Accounts Payable (1,000 x 1.12)

Purchase Returns and

P1, 500. Accounts Payable

Cash 1,500

Marivic Valenzuela-Manalo 3 7. Payment of account

within discount period.

Accounts payable (11,200 -1,120 -1,500)

Purchase discount

((20,160-1,120) x.02=380.8 / 1.12 )) Output tax (340 x .12) It will be noted that the input tax increases the amount to be paid but does not increase the cost of the purchase. Likewise, the output tax increases the amount to be collected from the customer but does not increase the sales revenue.

At the end of the month, the input tax and output tax are compared and if output tax is greater, then the difference is credited to an account VAT Payable to the government.

To illustrate, based on the foregoing transactions above:

Journal Entries DR Cr

Output tax (2,160-120-40.8) 1,999.2

Input Tax (1,200 -120-21.6) 1,058.4

VAT Payable ( 1,999.2 – 1,058.4) 940.8

If input tax is higher: (assuming input tax is P1,999.2 and output tax is P1,058.4)

Journal Entries DR Cr

Output tax 1,058.4

Excess of Input Tax over Output tax /

Creditable Input Tax* 940.8

Input Tax 1,999.2

*Creditable Input tax serves as tax credit the following month and be deducted along with the input tax.

Remittance of Vat payable amounting to P940.8

Journal Entries DR Cr

Vat Payable 940.8

Cash 940.8

Marivic Valenzuela-Manalo 4 VAT INCLUSIVE - Illustrative case:

Transactions Journal Entries DR Cr

1. Purchased merchandise

P10,000 including 12% VAT , terms 2/10 n/30.

Purchases (10,000 / 1.12) Input Tax ( 8,928.57 X. 12) Accounts Payable

8,928.57 1,071.43

10,000 2. Sold merchandise

P18,000 including 12% VAT , terms 2/10 n/30.

Account Receivable Sales ( 18, 000 / 1.12)

Output Tax (16,071.43 x .12)

18,000

16,071.43 1,928.57

FINANCIAL STATEMENT PRESENTATION

1. Vat Payable – Current Liability as part of Notes to the Financial Statement - Trade and other Payable

2. Excess of Input Tax over Output tax / Creditable Input Tax – Other current asset and be presented after Prepaid Expense.