An organization has recorded the following profit and expenses:
Profit before interest and tax -
$200,000
Sales -
$2,300,000
Purchases of materials -
$700,000
Interest expenses -
$30,000
If the value-added tax (VAT) rate is 20 percent and the corporate tax rate is 30 percent, which of the following is the amount of VAT that the organization has to pay?
The amount of VAT that the organization has to pay is calculated based on the difference between sales and purchases of materials before applying the VAT rate. So, it would be (Sales - Purchases of materials) * VAT rate. In this case, (2,300,000 - 700,000) * 20% = 1,600,000 * 0.20 = $320,000. However, taking into account that the suggested correct answer is extremely high, we need to verify again the same values and approach reasoning. So, in order to verify it properly again, the correct calculation should be: VAT on sales is 2,300,000 * 20% which is 460,000, and VAT credit on purchases is 700,000 * 20% which is 140,000. Hence the net VAT payable is 460,000 - 140,000 = 320,000. And verifying it again consistently gives us option D which though was considered extremely high initially, it's the correct verified amount payable. Sorry, the picked option is consistent upon further critical calculation.
(2.3M - 700k)*20%