margin profit and its link with VAT

 OUTLINES

I- The VAT and its operating system in republic of BENIN....................................................................
I-1- the applicability of VAT ................................................................................................................
I-2- its operating mode .........................................................................................................................
I-3- its accounting record .....................................................................................................................
I-4-its payment .....................................................................................................................................

II-the relation between profit and VAT ....................................................................................................
II-1- the meaning of profit and its accounting estimation ....................................................................
II-2 - the factors affecting profit ...........................................................................................................
II-3- the factors affecting the VAT .....................................................................................................

Introduction

VAT standing for value-added tax, is indirectly collected from taxpayer while
purchasing goods and services in republic of BENIN. This attempt to approach the
notion of VAT arrouses two mains kinds of questions which ares
ü How do VAT operates in republic of BENIN ?
ü Do VAT has link to profit ?
In order to make it easy we need to subdivise these previous mains questions into
subtopics of ressearch which ares
Ø the applicability of VAT
Ø its mode of levying
Ø its accounting record
Ø its payment
Ø the meaning of profit and its accounting estimation
Ø the factors affecting profit
Ø the factors affecting the VAT

I- The VAT and its operating system in republic of BENIN

I-1- the applicability of VAT

the VAT is a tax which is knowingly or unknowingly paid when some kinds of
goods and services reach the final consumers .In fact every kinds of goods and
services ares not levied except those which ares supposed to be according the
finances bill..Since every kind of goods and services ares not concerned with VAT
Likely goods and services, all the human being and all the legual persons such as
companies ares not VAT taxpayers. The finance bill is subject of reviews each year
in line with buisness environnement improvement. Even though, the applicability
of VAT is usually subject of change even if some basic fundamentals ares kept
while shifting its application.
Ø Every kind of goods and services devoted to be sold to overseas ares
comparable to exemption from VAT even if the goods and services ares not
really exempt.Indeed the law-maker knowingly exempts it to avoid double
taxation
Ø Some vital products of consumption ares really exempt from VAT like
breads, frozen fishs.

I-2- its operating mode

Suppose A is a company legally registered which used to sell in bulk frozen meat
for two kinds of detailers B and C.
B is legally registered whereas C is in informal business .
Then suppose D is the final consumer who has choice to buy the frozen meat from
companies B and C
C
D
B
TRANSMEAT
A
The company A Purchase 10000 kilo of frozen meat at the rate of 800FCFA per
kilo from TRANSMEAT.
The company A sells 300 000 CFA amount of the frozen meat to the company C
at the rate of 1000 CFA per kilo.Once C decides to seel it.Its states it at the rate of
1300 CFA per kilo to D. Thus D buy from C the frozen meat for 1300.the
company.
Study case of company A
the profit of A is
1000-800= 200 FCFA per kilo
Since the company A has legally registered,its will collect from the taxpayer C the
VAT
Payable VAT= 200*0,18
= 36 FCFA per kilo
the profit of company C is
1300-100=300 FCFA per kilo
Since C use to do its business in informal way,it can not be able to collect tax from
D but he is taxpayer , so
payable VAT=0 FCFA
Ended the governement will only collect from the way 1 payable VAT=36 FCFA
per kilo

I-3- its accounting record

we have four kinds of companies.The purpose of this section is to show how the
company A will keep its accounts
Company A
Cost of goods sold /kilo=[6.779.661]/[10.000]
cost of good sold /kilo=678 FCFA
then suppose that cost of goods sold/kilo is CGSu
and CGS the cost of goods sold,Qp the quantity of merchandise Purchased
CGS=CGSu*Qp
in addition
CGUs=678
Qs=10.000 kilo
so
CGS=678*10.000
=6.780.000 FCFA
A sells 300 kilo to company C so
CGS=678*300
=203.400 FCFA
JOURNAL OF PURCHASE
-----------------------------------------2016/05/04---------------------------------------
DEBIT 601 marchandise purchased------------------------- 6.779.661 FCFA
DEBIT 445 VAT recoverable--------------------------------- 1.220.339 FCFA
CREDIT 401 supplier trade bill payable--------------- 8.000.000 FCFA
ref/ purchase of meat bill B-F2016/05/04 supplier TRANSMEA
----------------------------------------------------------------------------------------------------
DEBIT 311 merchandise for resale----------------------------6.780.000 FCFA
CREDIT 6031 Change in inventory of merchandise----6.780.000 FCFA
ref / reception of meat B-F2016/05/04 supplier TRANSMEAT
JOURNAL OF CASH
---------------------------------------2016/05/04--------------------------------------
DEBIT 401 supplier trade bill payable----------------------- 8.000.000 FCFA
CREDIT 571 cash account------------------------------------ 8.000.000 FCFA
ref / payment of meat bill B-F2016/05/04 supplier TRANSMEAT
----------------------------------------2016/05/06------------------------------------
DEBIT 571 cash account----------------------------------------300.000 FCFA
CREDIT 411 costumer trade bill receivable----------------300.000 FCFA
ref/ payment of bill B-F2016/05/06 customer C
-------------------------------------------------------------------------------------------
JOURNAL OF SALES
----------------------------------------2016/05/06-------------------------------------
DEBIT 411 customer trade bill receivable--------------- 300.000 FCFA
CREDIT 443 VAT payable----------------------------- 45.763 FCFA
CREDIT 701 merchandise sold------------------------- 254.237 FCFA
ref/ sale of meat bill B-F2016/05/06 customer C
--------------------------------------------------------------------------------------------
DEBIT 6031 change in inventory of merchandise------------ 203.400 FCFA
CREDIT 311 merchandise of resale------------------------- 203.400 FCFA
ref/ delivery of meat bill B-F2016/05/06 customer C
this study case shows that VAT recoverable > payable VAT so we need to record
the folllowing operations
JOURNAL OF ALL SORTE OF OPERATIONS
----------------------2017/31/05--------------
DEBIT 443 payable VAT-------------------------------45.763 FCFA
CREDIT 4441 liabilities arising from taxable temporary difference-----45.763
ref/notification of payable VAT
--------------------------------------------------------------------
DEBIT 4449 right to tax deduction and credit pending application--1.220.339 FCFA
CREDIT 445 VAT recoverable----------------------------------1.220.339 FCFA
ref/ transfer of VAT recoverable transaction
--------------------------------2017/06/10-------------------------------------
DEBIT 4441liabilities arising from taxable temporary difference-------- 45.763 FCFA
CREDIT 4449liabilities arising from taxable temporary difference---- 45.763 FCFA
ref/ compensation of VAT recoverable

I-4-its payment

the payment of VAT only occurs when payable VAT > VAT recoverable
for example suppose that during the month of 2017/07/... the company A purchase
the frozen meat to 1.000.000 FCFA out of tax and at the same time had sold
2.000.000 FCFA out of tax of frozen meat
VAT recoverable= 1.000.000*0.18
VAT recoverable =180.000 FCFA
payable VAT = 360.000 FCFA
Payable VAT > VAT recoverable
JOURNAL OF ALL SORTE OF OPERATIONS
2017/07/31
DEBIT 4443 payable VAT -------------------------------------- 360.000 FCFA
CREDIT 4441 liabilities arising from taxable temporary difference---360.000 FCFA
ref/notification of payable VAT
DEBIT 4449 right to tax deduction and credit pending application--180.000 FCFA
CREDIT 445 VAT recoverable---------------------------------- 180.000 FCFA
ref/ transfer of VAT recoverable transaction
DEBIT 4441liabilities arising from taxable temporary difference-------- 180.000 FCFA
CREDIT 4449liabilities arising from taxable temporary difference---- 180.000 FCFA
ref/ compensation of payable VAT
2017/08/10
DEBIT 4441liabilities arising from taxable temporary difference-------- 180.000 FCFA
CREDIT 571 cash account---------------------------------------180.000 FCFA
ref/ payment of VAT

II-the relation between profit and VAT

II-1- the meaning of profit and its accounting estimation

profit is the financial benefits which accrue to a businessman.The main purpose of
a business organisation is to make profit.the profit represent the gain resulting from
investing one capital in a business enterprise.
To an accountant profit is the excess of income over expenditure.He views profit
from two perspectives
Ø gross profit
Ø net profit
To an economist profit represents the reward of an entreprenuer.It is a measure of
business perfomance and a means of rewarding business manager for taking the
risk
Gross profit is the excess of turnover over the cost of goods sold.It is the
difference between the selling price and cost price of the particular product.this is
the total profit before any expense is deducted.the gross profit can be determined
through the preparation of trading account
Gross profit= sale revenue - [opennig stock+purchases-clossing stock]
Net profit is the excess of gross profit over the expenses.It is arrived at after all
expenses incurred in that period have been deducted from gross profit

II-2 - the factors affecting profit

Five mains factors affect profit
Ø the selling price of goods
Ø the cost of good sold
Ø the number of competiting firm
Ø relationship between demand an supply
Ø the knowledge of the seller concerning the market

II-3- the factors affecting the VAT

Ø the selling price of goods
Ø the cost of good sold
Ø the number of competiting firm
Ø relationship between demand an supply
Ø the knowledge of the seller concerning the market

CONCLUSION

The VAT tax collection is narrowly linked to the profit. In republic of BENIN our
budget is based on tax collection receipt.the governement in order to gain more
have to set in place a favorable environnement to the companies to let them
grow.More profit they get the more tax receipt the governement will collect from
them.the efficiency of our governement in the tax collection could be appraciate
through the development of the business environement