EISA MOCK EXAM- TP

Paper 5
Question 1A
MEMO

Reason Reference to the VAT Act Calculation Amount

Connected person to a company: Any person that holds > 10% of the Section 1: Definition of connected
company's equity shares person
Mr Eagle holds 15% of the shares in Evoque and is therefore a
connected person to Evoque
General time of supply rule: earlier of date of invoice & Payment
received (8 March 2021) Section 9(1)
Supply to a connected person: Special time of supply rule applies if
application of general time of supply rules results in a date that is
later that the date of the removal of the goods. Time of supply is the
time of removal of the goods. section 9(2)(a)
Mr Eagle took posession of the stove on 27 Feb 2021, the time of
supply is therefore 27 Feb 2021.
General value of supply rule: the amount of money if the
consideration is received in money Section 10(3)

Special value of supply rule to a connected person: When a vendor

supplies goods to a connected person for a consideration that is less
than the open market value and the connected person would not
have been able to claim the full input tax, the consideration of the
supply is deemed to be the open market value. section 10(4)

Mr Eagle is not registered for VAT and he paid an amount (R10 000)
that is less than the open market value of the stove (R15 500)
The consideration of the supply is therefore R15 500
Output tax to be included in the 2021-02 VAT declaration 15500 x 15/115 2 021.74
Advisory (Critical Thinking)

From an accounting perspective, the risk and rewards of the sale of

the oven will transfer to Mr Eagle on 27 February 2021, the same
day that the output tax will be triggered for VAT.
An invoice should therefore be raised 27 Feb 2021 and the transaction accounted as follows:
DT Debtors 10 000.00
CR VAT Control - 2 021.74
CR Proceeds with sale of fixed assets - 7 978.26
The invoice raised on 8 March 2021 should be cancelled.
REFER TO ALTERNATIVE ADVISORY ANSWER BELOW

ALTERNATIVE ANSWER

Output VAT on 2021-02 VAT201 (transaction not recorded for

accounting purposes, therefore reconciling item on VAT control
balance recon @ 28 Feb 2021: Output tax declared and paid but no
credit entry recorded against VAT control account) 2021.74

1) Harris records invoice on 8 March 2021

DT debtors 10 000.00
CR Proceeds with sale of fixed asset (I/S) - 8 695.65
CR VAT control - 1 304.35

2)Mr Eagle makes payment

DT Bank 10 000.00
CR debtors - 10 000.00

3)VAT adjustment
DT Proceeds with sale of fixed asset 717.39
CR VAT Control - 717.39

After journal 3, the VAT control recon would be in balance