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Sales Tax and VAT

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Sales Tax and VAT - Lesson Summary

A ratio is an expression that compares quantities relative to each other.

When we compare two quantities in relation to each other, such a comparison is mathematically expressed as a ratio.

Percent means ‘per hundred’ or out of hundred. Percentage is another way of comparing ratios that compares to hundred.

A change in a quantity can be positive, which means an increase, or negative, which means a decrease. Such a change can be measured by an increase percent or a decrease percent.

Percentage Change (Increase/Decrease) =   amount of change initial quantity  x 100

A discount is a price reduction offered on the marked price. Discounts are offered by shopkeepers to attract customers to buy goods and thereby increase sales.

Discount = Marked price (MP) – Sale price (SP)

A discount is, in fact, a percentage decrease, because the amount of change or discount is compared with the initial price or marked price.

Discount percentage =  Discount  Marked Price  x 100

Value Added Tax(VAT)
Sales tax is charged by the government on the selling price of an item and is included in the bill amount.
Sales tax has been replaced by a new tax called Value Added Tax (VAT). Normally, VAT is included in the price of items like groceries.

Cost Price
The price at which an article is made is called cost price.

Selling price
The price at which an article is sold is called selling price.

Profit and loss depend on cost price and selling price. If cost price < selling price, there is a profit. Profit is calculated by subtracting cost price from selling price.

Profit = SP – CP.

If cost price > selling price, then there is a loss. Loss is calculated by subtracting selling price from cost price.

Loss = CP – SP.

You can calculate profit percent or loss percent by using these formulae.

Profit% =  Profit Cost Price  x 100

Loss% =  Loss Cost Price  x 100

There are certain expenses like transportation, labour charges, repairs and rent, etc. Such additional expenses are called overhead charges. In such cases, the new cost price will be cost price of the goods plus overhead charges.


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