A trader, registered for VAT, commenced business in the year with a capital in cash of £180,000. His purchases and sales, inclusive of VAT at 17.5%, were £446,500 and £493,500. 20% of goods purchased remain in hand at the year-end. He paid £141,000 for furniture and £47,000 as expenses (both inclusive of VAT at 17.5%); besides paying £22,500 as salary and £375,000 to suppliers. During the year he received £412,000 from customers and £20,500 as VAT refund. He wrote off £9,400 as bad debts and 20% of cost of furniture as depreciation. Set out how the transactions will be reported in the year’s financial statements.

Note:

■ Each amount reported in the question is inclusive of VAT, i.e. amount + 17.5%. Hence the VAT included in purchases (for example) is calculated as £446,500 × 17.5/117.5 = £66,500.

■ The trader’s purchases are accounted for without VAT. Hence any inventory in hand at the yearend should be reported without the VAT.