ACCOUNTING FOR VAT

This query is : Resolved

Rajesh Goyal (Querist)
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24 August 2010 DEAR EXPERTS,

PLEASE ADVISE WHETHER THE PRURCHASES AND SALES IN THE P&L SHOULD BE SHOWN INCLUSIVE OF VAT OR EXCLUSIVE OF VAT.

PLS SUGGEST THE ACCOUNTING AND RELEVANT PROVISIONS OF THE ACT.

REGDS,

sudhakar ca cwa

sudhakar ca cwa (Expert)
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24 August 2010 hi rajesh

better do not include the vat amount in sales and purchases

entries
For purchases
Purchasea a/c dr
Input Vat a/c dr
to Creditors a/c

for sales
debtors a/c dr
to sales a/c dr
to vat payable a/c

and at the end of the year pass set off entry for both input and payable and pay the nevessary amount

Aditya Maheshwari

Aditya Maheshwari (Expert)
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24 August 2010 As per Section 145A closing stock should be valued inclusive of taxes paid and does not mentioned anything about accouting for purchase and sale on inclusive or exclusive method.

But then if stock is valued inclusive of tax and sales and purchase exclusive of tax then it will be a mismatch in the P &L A/c and hence should be inclusive of VAT.

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Rajesh Goyal

Rajesh Goyal (Querist)
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24 August 2010 But in the Guidance Note issued by ICAI, it is mentioned as follows:

The input State-Level Value Added Tax (VAT) paid on purchases cannot be
included in the cost of purchases. Where the tax paid on inputs is available
for set-off against the tax payable on sales or is refundable, it is in the
nature of taxes recoverable from taxing authorities. The Accounting
Standard (AS) 2 “Valuation of Inventories” issued by the ICAI deals with
“cost of inventories” and “cost of purchases”. As per para 6 and 7 of the said
AS-2, the cost of purchases cannot include duties and the taxes which are
subsequently recoverable from the taxing authorities. Hence the input tax
which is refundable, should not be included in the cost of purchases.

Aditya Maheshwari

Aditya Maheshwari (Expert)
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24 August 2010 Yes there is a mismatch between AS - 2 and section 145A and that is why reconciliation between stock as per books and income tax is made. The same is also there is clause of form 3CD.

52[Method of accounting in certain cases.

145A. Notwithstanding anything to the contrary contained in section 145, the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head “Profits and gains of business or profession” shall be—

(a) in accordance with the method of accounting regularly employed by the assessee; and

(b) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.

Explanation.— For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment.]