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AC120 lecture 22

AC120 lecture 22. Completion of SSAP 4 Accounting for VAT. Example 4. Company A buys a fixed asset for €1 million. Depreciation policy is 25% straight line The company receives a government grant of €600,000 as a contribution towards the cost of the asset

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AC120 lecture 22

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  1. AC120 lecture 22 • Completion of SSAP 4 • Accounting for VAT

  2. Example 4 • Company A buys a fixed asset for €1 million. Depreciation policy is 25% straight line • The company receives a government grant of €600,000 as a contribution towards the cost of the asset • Grant income and expenditure amounts received and paid respectively before the financial year end. • How should company A account for the grant and the fixed asset?

  3. Accounting for VAT • SSAP 5, issued in 1974 • Value Added Tax is a tax charged on the supply of most goods and services • Some trades and some firms are exempt depending on type of trade or size of business

  4. Accounting for VAT • VAT is borne by the ultimate consumer • If a business is not the final consumer, the accounts of the business reflect its role as collector on behalf of the revenue authorities

  5. Example 1 • Organisation A is registered for VAT • Sales of goods on credit to J Bloggs €100 • Sales of goods for cash to J Bloggs €200 • Purchases of goods on credit from N Maguire €50 • Purchase of fixed asset €1,000 • Amounts don’t include VAT. Applicable VAT rate is 10%.

  6. Example 2 • Organisation A is not registered for VAT • Sales of goods on credit to J Bloggs €100 • Sales of goods for cash to J Bloggs €200 • Purchases of goods on credit from N Maguire €50 – N Maguire is registered for VAT! • Purchase of fixed asset €1,000 – supplier is not registered for VAT • Relevant amounts don’t include VAT of 10%

  7. References • Wood, chapter 20 • Thomas, chapter 31

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