ICANManagement InformationInformation Systems in Business2021

Adeola Traders Limited, a VAT-registered entity, purchases goods worth ₦12,500,000 (VAT-exclusive) and sells them for ₦18,000,000 (VAT-exclusive). Using the VAT Act Cap V1 LFN 2004 (as amended) at a rate of 7.5%, what is the VAT payable to the Federal Inland Revenue Service (FIRS) that the company's accounting information system should record?

A₦412,500CORRECT
B₦937,500
C₦1,350,000
D₦1,012,500
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Why the answer is A, and why the others tempt you.
Output VAT = ₦18,000,000 × 7.5% = ₦1,350,000. Input VAT = ₦12,500,000 × 7.5% = ₦937,500. VAT payable = ₦1,350,000 − ₦937,500 = ₦412,500. The accounting information system records this net VAT liability. Option C is output VAT only (ignoring input VAT credit), option B is input VAT only, and option D is an arithmetic error.
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