doubt..urgent...help

Priyanka Arora (abc) (55 Points)

22 February 2010  

 

Q) Compute the VAT amount payable by Mr. A who purchases goods from a
manufacturer on payment of Rs. 2,25,000 (including VAT) and earn 10% profit on
sale to retailers? VAT rate on purchase and sale is 12.5%

Ans) Calculation of invoice value
Purchased price of goods excluding VAT (225000 / 112.5 X 100) 200000
Add: Profit margin 20000
Amount of bill 220000
Add: VAT @ 12.5% 27500
Total invoice value 247500

VAT to be paid by Mr. A
VAT charged in the invoice 27500
Less: Input credit (12.5% of Rs. 200000) 25000
Net VAT payable 2500

i am confused as to if 10% PROFIT ON SALE TO RETAILERS is given...then why have we calculated the profit on cost???
why isnt the profit calculated as 10/110 * 200000