Hux Co, a manufacturing firm, purchases raw material at a cost of BHD8,500 plus VAT at the standard rate of 5%. From the raw materials Hux Co makes finished products which it sells to retail outlet, Gra Co, for BHD 11,500 plus VAT at 5%. Gra Co sells the products to customers at a total price of BHD 14,000 plus VAT at 5%.

Required:

A. Prepare the accounting journal entries for VAT from Hux Cos Standpoint. (6 marks)

B. Advise Hux Co on whether the VAT is payable or receivable and the exact implications of that to Hux Co.