Question
Nutty Baker is a sole proprietor and not registered as a VAT vendor (that is, they don't charge VAT on thelr sales and can't claim VAT back on purchases made from SARS). Nutty Baker bakes bread, pastries, cakes, cookles, bagels, pastries and pies. The curent fnancial year-end of Nutty Baker is 28 February \( 20 \times 2 \). Nutty Daker purchased a new industrial oven on 20 January \( 20 \times 2 \) from a registered VAT vendor at aprice of R113 000 (this price excludes VAT charged at \( 15 \% \). The oven was installed by a non-registered VAT vendor for R6 000 on 25 January \( 20 \times 2 \). The oven was ready for use as intended by management on 1 February \( 20 \times 2 \). What cost should the oven be recognised at initially? Type volur answer.
Ask by Lyons May. in South Africa
Feb 24,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
The oven should be recognized at an initial cost of R135,950.
Solution
Nutty Baker isn’t VAT‐registered, so even though the supplier adds VAT, Nutty Baker cannot reclaim it. This means that the full VAT-inclusive amounts (plus any additional directly attributable costs) should be included in the cost of the oven.
1. Purchase price: R113,000 (excluding VAT).
2. VAT on the oven: 15% of R113,000 = R16,950.
Total for the oven = R113,000 + R16,950 = R129,950.
3. Installation cost: R6,000 (no VAT since the installer is not VAT‑registered).
Thus, the total cost to be recognized initially is:
R129,950 + R6,000 = R135,950.
So the oven should be capitalized at R135,950.
Answered by UpStudy AI and reviewed by a Professional Tutor
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Simplify this solution Beyond the Answer
To calculate the initial cost at which the oven should be recognized, we need to include the purchase price of the oven, excluding VAT, along with any installation costs. The purchase price of the oven is R113,000 (excluding VAT). The installation fee is R6,000 (which does not include VAT because it was done by a non-registered vendor). Therefore, the initial cost of the oven will be: Initial Cost = Purchase Price + Installation Cost Initial Cost = R113,000 + R6,000 Initial Cost = R119,000 The oven should be recognized at an initial cost of R119,000.
