Settlement Discounts

System

Settlement discounts (i'm having trouble with the VAT)<BR> <BR>You order the following goods<BR> <BR>Bottle A - £28<BR>Bottle B - £35<BR>Cups - £12<BR>Cooler Care - £15*<BR> <BR>* The cooler care is zero-rated<BR>Total = £90<BR> <BR>You have been offered a 10% settlement discount if you pay with in 14 days.<BR>The net amount after the discount is £90*90% = £81<BR> <BR>To calculate the VAT do you???<BR> <BR>A) Add together all of the VATable items<BR> <BR>£28 + £35 + £12 = £75<BR> <BR>minus the settlement discount of 10%<BR> <BR>£75 * 10 / 100 = £7.5 <BR>£75 - 7.5 = £67.50<BR> <BR>Then calculate the VAT<BR> <BR>£67.50 * 0.175 = £11.81<BR> <BR> <BR>OR<BR> <BR> <BR>B) Calculate the net amount after the discount and then minus the zero-rated item<BR> <BR>£90*90% = £81<BR> <BR>£81 - £15 = £66<BR> <BR>£66 * 0.175 = £11.55<BR> <BR> <BR>Which one is it????<BR> <BR> <BR>Thanks<BR> <BR>Simone

System

Settlement Discounts

I would go with (b). You need to work out the 10% discount on the non vatable item as well, then work out the VAT with the cooler care and discount deducted.

System

Settlement Discounts

I'd go with A<BR><BR>You are only working the vat out<BR><BR>vat on discounted items is total amount less discount & then x 17.5% vat<BR>in this case 75 less 10% disc = 67.50 x 17.5% =11.81<BR>

System

Settlement Discounts

Isn't it A)?<BR><BR>£28 - (£28x10%) = £25.20 x 17.5% = £4.41<BR>£35 - (£35x10%) = £31.50 x 17.5% = £5.51<BR>£12 - (£12x10%) = £10.80 x 17.5% = £1.89<BR>£15 - (£15X10%) = £13.50 <BR><BR><BR>The total VAT due whether or not the discount is taken is the total of the right hand column - £11.81 as you have already said. The Net total is the total of the middle column - £81.00, again, as you have already mentioned.<BR><BR>Surely it couldn't be , because subtracting £15 from £81 doesn't make sense. The latter figure already includes the 10% discount. At this point the £15 no longer exists.

System

Settlement Discounts

Hi<BR><BR>Dare I say it, I think either method would work. If you use method B you need to remember that before calculating the VAT you need to remove the non vatable item at the discounted rate as, quite rightly, the £15 no longer exists if taking up the discount.<BR><BR>28 less 10% = 25.20<BR>35 less 10% = 31.50<BR>12 less 10% = 10.80<BR>15 less 10% = 13.50<BR>Total at discounted rate = £81.00<BR>To calculated the VAT remove 13.50 (15 less 10%) = 67.50*17.5% = £11.81 VAT.<BR><BR>Either method has to work so long as you remember the non vatable item and the final value thereof.<BR><BR><BR><BR><BR>

System

Settlement Discounts

I agree with Birdseyeview, that if you properly changed the figures in 'B', you would arrive at the correct answer. <BR><BR>My first reply concentrated on which 'answer' was the right one. In my view it is 'A'.