ICANBusiness, Management and FinanceWorking Capital Management2024

Which of the following statements correctly describes the treatment of Value Added Tax (VAT) under the Value Added Tax Act (as amended by the Finance Acts 2019 and 2020) in the context of working capital management for a VAT-registered business in Nigeria?

AVAT paid on purchases is recognised as part of the cost of inventory and is included in current assets as stock.
BVAT collected on sales represents a liability to the Federal Inland Revenue Service (FIRS) and should be excluded from trade receivables when assessing the company's true working capital position.CORRECT
CVAT remittance is due annually and therefore has no impact on a company's short-term liquidity position.
DA VAT-registered company may recognise input VAT as revenue in its statement of profit or loss to offset the cost of supplies.
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Why the answer is B, and why the others tempt you.
Under the VAT Act (as amended), a VAT-registered business acts as an agent of the government; output VAT collected from customers is a liability payable to FIRS and does not belong to the business. Including output VAT in receivables overstates the company's true liquidity. VAT returns and remittances are due on a monthly basis (not annually), making it a short-term liquidity concern. Input VAT is recoverable and cannot be recognised as revenue.
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