Total 10,100 Add 20 per cent profit margin 2,020 Total 12,120 Basic selling price (incorrect)13,620 Basic selling price (correct) 12,120 Add 12.5 per cent VAT 1,515
VAT inclusive selling price 13,635
Now the difference 15323 - 13635 shows that A has overcharged by 1688 which is correct..
The example indeed is very helpful. However, 1. how would we know if the vendor has already paid VAT or is going to pay it after he sells his inventories 2. why is the VAT calculated over handling and profit margins? Is this correct or we are increasing the profit margin by a couple of percentage points about the intended profit margin?
