The question : only one

Compute North Stars Ltd's VAT liability for each quarter. Take into account all the taxable sales, purchases, and expenses as well as adjustments when computing output and input VAT for each quarter. Show all computations and/or give explanation where possible.

Extra information:

North Stars Ltd is a UK resident company. The company trades in sports goods and physical exercise equipment. All goods are taxable unless stated otherwise. North Stars Ltd buys goods from local manufacturers and markets in England and some other European Countries. Company prepares its accounts to 31 March each year. The detailed statement of profit or loss for the year ended 31 March 2019 is given below:

Net sales (N.2) 14,691,874

Cost of sales (N.3)(11,480,000)

Gross profit 3,211,874

Operating expenses:

Depreciation 250,000

Employee costs (N.4) 1,100,000

Rent expenses (N.5) 250,000

Selling and marketing (N. 6) 95,000

General & administrative (N.7)624,000

Repairs and renewals (N.8)34,500

Vehicles maintenance (N.9)198,000

Loss on sale of delivery van (N.10)5,500

Leasing cost (N.11)8,000

Legal, professional and trade fees (N.12)65,000

Impaired debts (N.13)9,500

(2,639,500)

Operating profit 572,374

Other income:

Property income (N.14)35,000

Bank interest (N.15)8,500

Dividends (N.16)13,00056,500

Finance costs

Interest expenses (N. 17)(41,000)

Profit before taxation 587,874

Notes:

1. Company

North Stars Ltd acquires products, stores in its own warehouses if needed and transport to retailers as per the orders received. North Stars Ltd employes a team of sales staff, van drivers and staff for managing operations in the main office in Central London.

2. Sales

Quarterly sales for the year ending on 31 March 2019 are given below. All sales made within England are standard-rated but that made to VAT registered traders in other European countries are zero-rated. Sales made to the retailers within England are made on 60-day credit and 5% dicount is offered for the prompt payment. Sales made to traders in EU member states are made on credit of 30 days without any prompt payment discount. Goods sold are nonrefundable but exchangeable within 15 days. Sales figures in below given table arr before any prompt payment discount.

Quarter

Sales in England

Sales to European

Total

Traders

Sales

April 18-June 18

3,050,000

410,000

3,460,000

July 18-Sep 18

4,400,000

569,000

4,969,000

Oct 18-Dec 18

2,807,000

470,000

3,277,000

Jan 19-Mar 19

2,577,000

416,000

2,993,000

Total

12,834,000

1,865,000

14,699,000

Quarter

Sales discount availed

(only on sales in England)

April 18-June 18

60,500

July 18-Sep 18

47,200

Oct 18-Dec 18

-

Jan 19-Mar 19

34,810

Total

142,510

Sales figure reported in the statement of profit or loss is the net of discounts and has been computed as follows:

Total sales 14,699,000

Less: sales discount (142,510 x 0.05)(7,126)

Net sales after discounts 14,691,874

3. Cost of sales

Cost of sales includes the purchases of sports goods from the manufacturers and other costs associated with acquiring inventories. North Starts Ltd purchases goods on credit of 30 days and is not offered any dicount for prompt payments. Goods are returnable within 15 days and purchases are adjusted if goods are returned. All purchases and costs of acquiring goods are standard rated. Quarterly purchases given below are already adjusted for the purchases returns of the relevant quarter.

Quarter

Purchases

Other costs of

acquiring inventories

April 18-June 18

2,560,000

320,000

July 18-Sep 18

3,340,000

410,000

Oct 18-Dec 18

2,200,000

305,000

Jan 19-Mar 19

1,980,000

289,000

Total

10,080,000

1,324,000

Beginning inventories April 1, 2018830,000

Cost of goods purchased11,404,000

12,234,000

Ending inventories March 31, 2019(754,000)

Cost of sales11,480,000

Beginning and ending inventories include total cost of goods available in company stores for sales and/or goods in transit from the manufactrers to company warehouses on first and the last day of the accounting period respectively.

4. Employee costs

Employee costs include salaries and wages paid to permanent staff and part-time workers hired for transportation, marketing and sales activities. Ignore all NICs payable on salaries and wages earned for the purpose of this assignment. Employee costs include staff party cost 15,900 and gifts to the employees costing 7,000.

5. Rent

Rent include rent paid on warehouses let in for the business purposes.

6. Selling and marketing

Selling and marketing expenses include:

Gifts to the customers (wall clocks bearing company name costing

40 per customer)12,000

Advertising and promotions 51,200

Entertaining UK customers 6,000

Entertaining overseas customers 7,500

Entertaining suppliers 4,300

Gifts to suppliers14,000

95,000

7. General and administartive

General and administartive expenses include:

Donations to approved charities (qualifying)8,000

Donations in funds raising campaign for the favorite candidate

during local body election3,500

Fine on violation of health and safety laws2,500

Other general and administrative (all allowable) 610,000

624,000

8. Repairs and renewals:

Repairs and renewals include

Construction of rooms for security staff in company's main office17,450

Repainting the exterior of the company's office building8,250

Repainting the office space let out in April 2018 (See note. 14)2,000

Built a new reception area in the main office 6,800

34,500

9. Vehciles maintenance

Include fuel cost and the cost of maintaining company's delivery vans and motor cars

under the use of company'e employees and managing director. All motor cars are used for

30% private mileage by the employees and managing director.

10. Loss on sale of delivery van

Capital loss of 5,500 is in respect of delivery van sold in June 2018 (See note 18).

11. Leasing cost

The leasing cost of 8,000 is in respect of a motor car which has CO₂ emissions of 95 grams per kilometer.

12. Legal, professional and trade fees

Fee paid for accounting and audit services 11,040

Legal fee in connection with the trade financing (Note 17)6,200

Charges paid to debt collectors 15,000

Legal fee in connection with acquiring and registering new vans16,760

HMRC penalties on late payments and filing4,300

Legal fees in connection with renewing a 25-year lease5,100

Legal fees in connection with a new 25-year lease6,600

65,000

13. Impaired debts

On 31 March 2019, North Stars Ltd wrote off an impairment loss of 9,500 relating to the

Invoice due on 15 September 2018.

14. Property income

On 1 April 2018, North Stars Ltd lets out an office space that is surplus to requirements at annual rent of 35,000 payable in advance.

15. Bank interest

The bank interest was received on 31 March 2019. The bank deposits are held for non-trading purposes.

16. Dividends

Dividends of 13,000 were received from another UK resident company.

17. The interest payable is in respect of the company's 3% loan stock. The loan stock was used to finance the company's trade activities. The interest amount given in the statement of profit and loss has been paid and is the amount relevant to the accounting period ended 31 March 2019.

18. The tax written down value of North Star Ltd's main pool assets on 1 April 2018 was 950,000. Following main pool assets were acquired and disposed during the year to 31 March 2019:

10 June 2018 Sold delivery van (original cost 25,000)15,000

10 August Bought new delivery vans 175,500

5 November Purchased motor car CO₂ emissions 100g/km10,000

10 March Purchased a used motor car CO₂ emissions 45g/km4,000

Assume, North Stars Ltd has no special rate pool item. All transactions of sales and purchases are subject to standard rate of VAT.

19. Company's VAT periods end on 30 June, 30 September, 31 December and 31 March in an year. For the purpose of computing VAT liability, quarterly data of taxable expenses and supplies included in the statement of profit or loss is as follows.

Quarter

Standard rated

Zero rated

expenses & supplies

expenses & supplies

April 18-June 18

320,500

8,000

July 18-Sep 18

310,000

6,500

Oct 18-Dec 18

280,900

11,000

Jan 19-Mar 19

103,200

2,000

Total

1,014,600

27,500