Exam practice

Every question from the end of every unit, with hints and answers to open. After you check an answer, mark how you did, and come back to the ones you didn’t get.

57 questions

Unit 2 · Tax

Exercise 2.1

Question 1

In Nepal, a married civil servant at officer level earns Rs 38,000 a month and pays a life insurance premium of Rs 23,500 a year. She is paid 13 months’ salary in a year, including the festival allowance. Using the couple’s rates for employment in Activity 2, how much income tax does she pay in a year?

Answer

Yearly income = 13 × 38000 = 494000.
The premium, Rs 23,500, is within the limit for life insurance, so all of it is taken off:
Taxable income = 494000 − 23500 = 470500 = Rs 4,50,000 + Rs 20,500.
$\begin{aligned} \text{Tax} &= \tfrac{1}{100} \times 450000 + \tfrac{10}{100} \times 20500 \\ &= 4500 + 2050 \\ &= 6550 \end{aligned}$
She pays Rs 6,550 a year.

Question 2

An employee pays income tax at 1% on the first Rs 4,50,000 of his yearly income, 10% from Rs 4,50,000 to Rs 5,50,000, 20% from Rs 5,50,000 to Rs 7,50,000 and 30% from Rs 7,50,000 to Rs 20,00,000. How much does he pay in a year if he earns Rs 65,000 a month?

Answer

Yearly income = 12 × 65000 = 780000 = Rs 4,50,000 + Rs 1,00,000 + Rs 2,00,000 + Rs 30,000.
$\begin{aligned} \text{Tax} &= \tfrac{1}{100} \times 450000 + \tfrac{10}{100} \times 100000 + \tfrac{20}{100} \times 200000 + \tfrac{30}{100} \times 30000 \\ &= 4500 + 10000 + 40000 + 9000 \\ &= 63500 \end{aligned}$
He pays Rs 63,500 a year.

Question 3

Rs 6,30,000

Answer

Rs 6,30,000 = Rs 4,50,000 (free) + Rs 1,00,000 (10%) + Rs 80,000 (20%).
Tax = 10000 + 16000 = Rs 26,000.

Rs 9,25,000

Answer

Rs 9,25,000 = Rs 4,50,000 (free) + Rs 1,00,000 (10%) + Rs 2,00,000 (20%) + Rs 1,75,000 (30%).
Tax = 10000 + 40000 + 52500 = Rs 1,02,500.

Rs 17,88,000

Answer

Rs 17,88,000 = Rs 4,50,000 (free) + Rs 1,00,000 (10%) + Rs 2,00,000 (20%) + Rs 10,38,000 (30%).
Tax = 10000 + 40000 + 311400 = Rs 3,61,400.

Rs 22,25,000

Answer

Rs 22,25,000 = Rs 4,50,000 (free) + Rs 1,00,000 (10%) + Rs 2,00,000 (20%) + Rs 12,50,000 (30%) + Rs 2,25,000 (36%).
Tax = 10000 + 40000 + 375000 + 81000 = Rs 5,06,000.

What it means: a little under 23% of the income, though the top rate is 36%.

Question 4

Rs 10 lakh is deposited in a bank for 4 years at 8.5% a year simple interest. What is the interest? If 5% income tax is taken from the interest, what is the interest after tax? (Income tax on interest is a tax on investment income.)

Answer

$\text{SI} = \frac{1000000 \times 4 \times 8.5}{100} = 340000$ : Rs 3,40,000.
Tax $= \frac{5}{100} \times 340000 = 17000$ .
Interest after tax = 340000 − 17000 = Rs 3,23,000.

Exercise 2.2

Question 1

Rs 300 at 13%

Answer

$\frac{13}{100} \times 300 =$ Rs 39.

Rs 750 at 13%

Answer

$\frac{13}{100} \times 750 =$ Rs 97.50.

Rs 6,000 at 13%

Answer

$\frac{13}{100} \times 6000 =$ Rs 780.

Rs 3,75,000 at 13%

Answer

$\frac{13}{100} \times 375000 =$ Rs 48,750.

Rs 20,27,000 at 13%

Answer

$\frac{13}{100} \times 2027000 =$ Rs 2,63,510.

Question 2

Rs 3,616

Answer

$3616 \times \frac{100}{113} =$ Rs 3,200 (the VAT in it is Rs 416).

Rs 30,510

Answer

$30510 \times \frac{100}{113} =$ Rs 27,000 (VAT Rs 3,510).

Rs 3,390

Answer

$3390 \times \frac{100}{113} =$ Rs 3,000 (VAT Rs 390).

Rs 57,630

Answer

$57630 \times \frac{100}{113} =$ Rs 51,000 (VAT Rs 6,630).

Rs 1,19,328

Answer

$119328 \times \frac{100}{113} =$ Rs 1,05,600 (VAT Rs 13,728).

Question 3

A computer: marked price without VAT Rs 35,000, discount 10%

Answer

35000 × 0.90 = 31500; VAT = 4095; Rs 35,595.

A watch: marked price without VAT Rs 6,500, discount 7.5%

Answer

6500 × 0.925 = 6012.50; VAT = 781.625; $6794.125 \approx$ Rs 6,794.13.

A mobile phone: marked price without VAT Rs 25,700, discount 15%

Answer

25700 × 0.85 = 21845; VAT = 2839.85; Rs 24,684.85.

A T-shirt: marked price without VAT Rs 1,450, discount 22.75%

Answer

1450 × 0.7725 = 1120.125; VAT = 145.616; $1265.741 \approx$ Rs 1,265.74.

Question 4

Rs 2,000, 8% off

Answer

2000 × 0.92 × 1.13 = 1840 × 1.13 = Rs 2,079.20.

Rs 7,000, 15% off

Answer

7000 × 0.85 × 1.13 = 5950 × 1.13 = Rs 6,723.50.

Rs 27,000, 20% off

Answer

27000 × 0.80 × 1.13 = 21600 × 1.13 = Rs 24,408.

Rs 20,525.30, 10% off

Answer

20525.30 × 0.90 × 1.13 = 18472.77 × 1.13 = 20874.23: Rs 20,874.23.

Rs 1,81,500, 7.5% off

Answer

$181500 \times 0.925 \times 1.13 = 167887.50 \times 1.13 = 189712.875 \approx$ Rs 1,89,712.88.

Question 5

An LED television is marked at Rs 37,500 without VAT. It is sold at 11% off, with 13% VAT. How much does the customer pay?

Answer

Price after discount = 37500 × 0.89 = 33375.
VAT = 0.13 × 33375 = 4338.75.
The customer pays Rs 37,713.75.

Question 6

20% off, Rs 4,520 with VAT

Answer

Price after discount = 4520 ÷ 1.13 = 4000; MP = 4000 ÷ 0.80 = Rs 5,000; discount Rs 1,000.

10% off, Rs 15,225 with VAT

Answer

15225 ÷ 1.13 = 13473.45; MP = 13473.45 ÷ 0.90 = Rs 14,970.50; discount = 10% of 14970.50 = Rs 1,497.05.

15% off, Rs 57,630 with VAT

Answer

57630 ÷ 1.13 = 51000; MP = 51000 ÷ 0.85 = Rs 60,000; discount Rs 9,000.

25% off, Rs 2,151.52 with VAT

Answer

2151.52 ÷ 1.13 = 1904; MP = 1904 ÷ 0.75 = 2538.67: Rs 2,538.67; discount = 2538.67 − 1904 = Rs 634.67.

15% off, Rs 2,40,125 with VAT

Answer

240125 ÷ 1.13 = 212500; MP = 212500 ÷ 0.85 = Rs 2,50,000; discount Rs 37,500.

Question 7

An electric kettle costs Rs 1,575 after a 5% discount on its marked price (without VAT) and 13% VAT. Find the price on which VAT was charged, and the marked price.

Answer

Price on which VAT was charged = 1575 ÷ 1.13 = 1393.81: Rs 1,393.81.
Marked price = 1575 ÷ (1.13 × 0.95) = 1575 ÷ 1.0735 = 1467.16: Rs 1,467.16.

Question 8

What is the price with VAT?

Answer

35000 × 0.895 = 31325; VAT = 4072.25; Rs 35,397.25.

What percentage profit or loss does he make?

Answer

He keeps Rs 31,325 (the VAT goes to the government). Profit = 31325 − 27500 = 3825, which is $\frac{3825}{27500} \times 100 \approx$ 13.91% profit.

What percentage profit would he make if he sold at the marked price?

Answer

Profit = 35000 − 27500 = 7500: $\frac{7500}{27500} \times 100 \approx$ 27.27%.

Question 9

How much VAT does the customer pay?

Answer

Marked price = 4000 × 1.25 = 5000; after the discount 5000 × 0.88 = 4400.
VAT = 0.13 × 4400 = Rs 572.

If instead he sells it at a 5% loss, what is its price with VAT?

Answer

Price before VAT = 4000 × 0.95 = 3800; with VAT 3800 × 1.13 = Rs 4,294.

Question 10

How much VAT does the retailer pay?

Answer

$\frac{13}{100} \times 67000 =$ Rs 8,710.

How much VAT does the customer pay at today’s rate?

Answer

Price before VAT = 67000 + 3000 + 5000 = 75000.
VAT $= \frac{13}{100} \times 75000 =$ Rs 9,750.

What it means: the retailer deposits 9750 − 8710 = 1040, which is 13% of the Rs 8,000 he added.

Question 11

What did the retailer pay for the watch, not counting VAT?

Answer

16950 ÷ 1.13 = Rs 15,000.

How much VAT did the retailer pay?

Answer

16950 − 15000 = Rs 1,950.

How much profit did the wholesaler make?

Answer

15000 − 12000 = Rs 3,000.

Question 12

How much VAT does the retailer pay the wholesaler?

Answer

0.13 × 15 × 9000 = 0.13 × 135000 = Rs 17,550.

How much VAT does the retailer collect from customers?

Answer

0.13 × 15 × 11500 = 0.13 × 172500 = Rs 22,425.

How much VAT does the retailer deposit with the government?

Answer

22425 − 17550 = Rs 4,875, which is 13% of the Rs 37,500 he added.

Question 13

How much VAT does the retailer pay the wholesaler? What is a chair’s price without VAT?

Answer

A chair without VAT: 10170 ÷ 1.13 = Rs 9,000. VAT per chair = 1170; for 10 chairs Rs 11,700.

How much VAT does the retailer collect from customers?

Answer

0.13 × 10 × 11500 = Rs 14,950.

How much does the retailer deposit with the government?

Answer

14950 − 11700 = Rs 3,250.

Question 14

How much VAT does the retailer pay the wholesaler, and what did the tables cost him without VAT?

Answer

A table without VAT: 10170 ÷ 1.13 = 9000. For 30 tables: Rs 2,70,000 without VAT, and VAT 30 × 1170 = Rs 35,100.

How much VAT does the retailer collect from customers, and what are the tables’ selling price without VAT?

Answer

A table without VAT: 12995 ÷ 1.13 = 11500. For 30: Rs 3,45,000 without VAT, and VAT 30 × 1495 = Rs 44,850.

How much does the retailer deposit with the government?

Answer

44850 − 35100 = Rs 9,750.

Question 15

15.

A company sets the price of a refrigerator at Rs 30,000. It sells it to a dealer, who adds Rs 5,000 and sells it to a retailer; the retailer adds another Rs 5,000 and sells it to Gyanbahadur. With 13% VAT at each step, how much tax does the government receive?

Answer

The final price before VAT is 30000 + 5000 + 5000 = 40000, so the government receives 13% of it: Rs 5,200 (company Rs 3,900, dealer Rs 650, retailer Rs 650).

Question 16

How much VAT does the wholesaler pay?

Answer

0.13 × 56000 = Rs 7,280.

If the dealer paid Rs 6,500 in VAT when he bought the machine, how much VAT does he deposit with the government?

Answer

7280 − 6500 = Rs 780.

At what price (without VAT) must the retailer sell it to collect Rs 9,360 in VAT?

Answer

9360 ÷ 0.13 = Rs 72,000.

Who collects the most VAT in these sales?

Answer

The wholesaler sold for 74580 ÷ 1.13 = 66000 without VAT, so collected Rs 8,580. The dealer collected Rs 7,280 and the retailer Rs 9,360. The retailer collects the most, Rs 9,360.

What it means: collecting the most isn’t keeping or depositing the most. The deposits are dealer Rs 780, wholesaler 8580 − 7280 = 1300, retailer 9360 − 8580 = 780: each is 13% of the value that seller added.