Confused on VAT's type, help!

Lei Zhou
Lei Zhou Registered Posts: 13 New contributor 🐸
in General discussion
Hi everyone,

Tomorrow I will have my AAT foundation PLB exam. After finised the Dec 2007's paper, I found a problem on VAT's type.

As I thought VAT belong to Liability accounts, but in the model answer of 2007, Dec. They said it's should be asset.

The Task as bellow:

Task 2.4
At the end of the last VAT quarter, Parker Paints was due a refund from HM Revenue and Customs.
(a) Would the balance on the VAT account be an asset or a liability in the accounting records of Parker Paints?

Comments

  • Jan
    Jan Registered Posts: 654 Epic contributor 🐘
    Lei

    Normally at the end of a VAT 1/4 a business would owe money to HMRC for VAT they had charged out on their Sales invoices, so this would be a liability. You are told that they are due a refund, in other words HMRC owe Parker Paints, so it is shown as an asset in the records of Parker Paints
  • Lei Zhou
    Lei Zhou Registered Posts: 13 New contributor 🐸
    Jan wrote: »
    Lei

    Normally at the end of a VAT 1/4 a business would owe money to HMRC for VAT they had charged out on their Sales invoices, so this would be a liability. You are told that they are due a refund, in other words HMRC owe Parker Paints, so it is shown as an asset in the records of Parker Paints


    Thanks, Jan.

    I'm lucky I didn't fine such problem on yesterday's exam.
    So, if VAT account have a debit balance, we can see it as assets, in opposite , it's liability.

    I inquired some of my mates, they say, no matter which side of the balance it has, VAT should be liability account, it's the attribute of this account. But this task give some special situation, so it's a little confused. Hope they will not give such question again....
  • Jan
    Jan Registered Posts: 654 Epic contributor 🐘
    Hi Lei

    Glad to hear the exam went well.

    As you see in the practice exam you were doing VAT isn't always a liability. I'm not sure how your mates would get the accounts to balance in this case if they insisted on showing it as such! :confused1:

    You may find something like this is thrown into an exam to test your understanding. You will be given a situation, that is possible to come across in the real world, but will be slightly different from what you have learnt. If you understand the concept, rather than have learnt it parrot fashion, then you can work it out. It also means you have to read the information given properly - something that isn't always done!
  • diane79
    diane79 Registered Posts: 37 Regular contributor ⭐
    Lei Zhou wrote: »
    Hi everyone,

    Tomorrow I will have my AAT foundation PLB exam. After finised the Dec 2007's paper, I found a problem on VAT's type.

    As I thought VAT belong to Liability accounts, but in the model answer of 2007, Dec. They said it's should be asset.

    QUOTE]

    It might help if you think of it like a bank account. Normally a bank account is an asset but if it's overdrawn it becomes a liability.

Categories

Privacy Policy