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Question
A manufacturer marks an article for ₹ 5000. He sells it to a wholesaler at a discount of 25% on the marked price and the wholesaler sells it to a retailer at a discount of 15% on the marked price. The retailer sells it to a consumer at the marked price and at each stage, the VAT is 8%.
Calculate the amount of VAT received by the Government from :
(i) the wholesaler.
(ii) the retailer.
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Solution
Marked price (M.P.) of an article = ₹ 5000
Discount is given to the wholesaler = 25%
Cost price of wholesaler or S.P. of the manufacturer
= `₹(5000(100 - 25))/(100)`
= ₹`(5000 xx 75)/(100)`
= ₹3750
Discount is given to the retailer or S.P. of the wholesaler
= ₹`(5000 xx (100 - 15))/(100)`
= ₹`(5000 xx 85)/(100)`
= ₹4250`
Cost price of the customers = ₹5000
Rate of VAT = 8%
VAT for the manufacture
= `(3750 xx 8)/(100)`
= ₹300
VAT for the wholesaler
= `(4250 xx 8)/(100)`
= ₹340
and VAT for the retailer
= `(5000 xx 8)/(100)`
= ₹400
(i) VAT received from the wholesaler
= ₹ 340 – ₹ 300
= ₹ 40
(ii) and VAT received by the retailer
= ₹ 400 – ₹ 340
= ₹ 60.
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