Question - Client - Jacob Zuze
Jacob commenced to trade on 1 September 2017 and prepared the first set of accounts for the sixteen months period ended 31 December 2018. Your firm advised Jacob to register for Value Added Tax (VAT) immediately he commenced to trade on 1 September 2017. He had bought goods for resale on 1 August 2017 for K125,000 (including VAT) and all of these goods were still available at 1 September 2017.
Jacob is now interested in knowing the total amounts of income tax and VAT that were payable by him for the period of trading ended 31 December 2018.
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The statement of profit or loss for the period as shown below: Sales Revenue (excluding VAT)
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1,600,000
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Less:
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Purchases (including goods bought on 1 August 2018)
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806,200
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Closing inventory
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125,000
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Cost of sales
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(681,200)
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Gross profit
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918,800
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Wages and salaries
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235,000
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Entertaining customers
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119,000
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Depreciation of motor vehicles
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78,000
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Overheads
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276,080
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Other revenue expenses
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150,800
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Total expenses
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(858,880)
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Net profit
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59,920
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Explain why Jacob Zuze was advised to register for VAT when he commenced to trade on 1 September 2017.