CERTYNEX IFRS ACADEMY

Fenouillet, a fabric wholesaler, receives an invoice showing a price net of discount of 50,000 and recoverable VAT of 10,000. Its accountant records: debit Inventories 60,000, credit Trade payable 60,000. What is the error?

The recoverable VAT of 10,000 was included in the cost of inventories instead of being recognised as a tax receivable.

The amount owed to the supplier should have been limited to 50,000, because recoverable VAT is never owed to the supplier but only to the tax authorities.

No error: the cost of inventories equals the total amount payable to the supplier.

The discount should have been added back to cost to arrive at the list price.