A manufacturer lists the price of the goods at Rs.240 per article. The wholesaler gets a discount of 25% on the goods from the manufacturer.The retailers are allowed a discount of 15% on the list price by the wholesaler. The prescribe rate of sale tax at all stages is 8%. A customer buys an article from the reatailer
at the listed price.
Find the VAT paid by the retailer & wholesaler.
To find the value-added tax (VAT) paid by the retailer and wholesaler, we need to calculate the selling price at each level and then calculate the tax based on that.
Step 1: Calculate the selling price at the manufacturer level.
Since the manufacturer's list price is Rs. 240 per article, there is no discount at this level. So, the selling price at the manufacturer level will be Rs. 240 per article.
Step 2: Calculate the selling price at the wholesaler level.
The wholesaler gets a 25% discount on the goods from the manufacturer. So, the selling price at the wholesaler level will be 75% of the manufacturer's selling price.
Selling price at the wholesaler level = 75% of Rs. 240 = Rs. (0.75 * 240) = Rs. 180 per article.
Step 3: Calculate the selling price at the retailer level.
The retailer gets a 15% discount on the list price from the wholesaler. So, the selling price at the retailer level will be 85% of the wholesaler's selling price.
Selling price at the retailer level = 85% of Rs. 180 = Rs. (0.85 * 180) = Rs. 153 per article.
Step 4: Calculate the VAT paid by the retailer.
The prescribed rate of sales tax at all stages is 8%. So, the VAT paid by the retailer will be 8% of the selling price at the retailer level.
VAT paid by the retailer = 8% of Rs. 153 = Rs. (0.08 * 153) = Rs. 12.24
Step 5: Calculate the VAT paid by the wholesaler.
The wholesaler doesn't pay VAT directly as they have already paid VAT on the initial purchase from the manufacturer. The VAT paid by the wholesaler is the difference between the selling price at the wholesaler level and the selling price at the manufacturer level.
VAT paid by the wholesaler = Selling price at the wholesaler level - Selling price at the manufacturer level
= Rs. 180 - Rs. 240
= -Rs. 60 (Since the wholesaler pays less than the initial price, the VAT paid is negative.)
Therefore, the VAT paid by the retailer is Rs. 12.24, and the VAT paid by the wholesaler is -Rs. 60.