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Chapter 12 – Exercises & Cases

Multiple Choice Questions​

  1. Current liabilities are obligations due within: a) 6 months b) 1 year c) 2 years d) 5 years Answer: b) Current liabilities are due within one year (or operating cycle).

  2. Which PCN account is used for VAT Payable? a) 400000 b) 430000 c) 440000 d) 450000

    Answer: b) 430000 is VAT Payable (TVA à Payer).

  3. Social charges in Luxembourg include: a) Only employee contributions b) Only employer contributions c) Both employee and employer contributions d) Only health insurance Answer: c) Social charges include both employee and employer portions.

  4. VAT Payable is calculated as: a) VAT on purchases only b) VAT on sales only c) VAT on sales minus VAT on purchases d) VAT on purchases minus VAT on sales Answer: c) Net VAT = VAT Payable (sales) - VAT Recoverable (purchases).

  5. Which is a current liability? a) Long-term loan b) Building c) Accounts Payable d) Equipment Answer: c) Accounts Payable is a current liability.

Questions​

  1. What are current liabilities? Give examples.

  2. How is VAT Payable calculated and recorded?

  3. Explain social charges in Luxembourg. How are they accounted for?

  4. What PCN accounts are used for current liabilities?

  5. Why is it important to accurately record current liabilities?

Problems Set A​

Problem A-1: Accounts Payable

A Luxembourg retail store makes the following purchases on credit. Record each with proper PCN accounts:

a) Purchase €5,000 inventory (excluding VAT), VAT 17%, recoverable b) Purchase €2,000 supplies (excluding VAT), VAT 17%, recoverable c) Pay €5,850 to supplier (from purchase a) d) Pay €2,340 to supplier (from purchase b)

Problem A-2: VAT Payable

A business has the following VAT transactions for the month:

  • Sales (excluding VAT): €20,000, VAT 17%
  • Sales (excluding VAT): €5,000, VAT 3% (food products)
  • Purchases (excluding VAT): €12,000, VAT 17%, recoverable
  • Purchases (excluding VAT): €3,000, VAT 3%, recoverable (food)

Calculate: a) Total VAT Payable b) Total VAT Recoverable c) Net VAT to pay d) Record VAT payment

Problem A-3: Salaries Payable

Record the following payroll transactions: a) Gross salaries: €8,000 b) Employee social charges: 20% (€1,600) c) Employer social charges: 24% (€1,920) d) Net pay to employees: €6,400 e) Payment of salaries and social charges

Problem A-4: Accrued Expenses

Record the following accrued expenses at month end: a) Accrued salaries: €2,000 b) Accrued interest: €150 c) Accrued utilities: €300

Problem A-5: Unearned Revenue

A business receives advance payments: a) Customer pays €2,000 in advance for services b) Services provided (€1,500 worth) c) Remaining services provided next month

Record all transactions.

Problems Set B​

Problem B-1: Complete Current Liability Cycle

A Luxembourg business has the following transactions in November:

  1. Purchase €10,000 inventory on credit (excluding VAT), VAT 17%
  2. Sales: €15,000 (excluding VAT), VAT 17%
  3. Accrue salaries: €5,000
  4. Calculate employee social charges: 20%
  5. Calculate employer social charges: 24%
  6. Pay salaries and social charges
  7. Calculate and pay net VAT for the month

Record all transactions with proper PCN accounts.

Problem B-2: VAT Return Preparation

Prepare VAT summary for quarterly return:

Sales:

  • Standard rate (17%): €50,000
  • Reduced rate (3%): €10,000

Purchases:

  • Standard rate (17%): €30,000
  • Reduced rate (3%): €5,000

Calculate net VAT and prepare journal entry for payment.

Problem B-3: Payroll Complete Cycle

Complete payroll accounting for month:

  • Gross salaries: €20,000
  • Employee social charges: 20%
  • Employer social charges: 24%
  • Income tax withheld: 10%

Calculate and record all payroll transactions.

Problem B-4: Current Liability Analysis

A business has the following current liabilities:

  • Accounts Payable: €25,000
  • VAT Payable: €5,000
  • Salaries Payable: €8,000
  • Social Charges Payable: €3,000
  • Interest Payable: €500
  • Unearned Revenue: €2,000

Calculate total current liabilities and explain cash flow implications.

Comprehensive Problem​

Comprehensive Problem 12: Complete Current Liability Management

Le Petit Bistro needs to properly account for all current liabilities for the month of November 2024.

Transactions:

November 1-30:

  • Credit purchases: €15,000 (excluding VAT), VAT 17%, recoverable
  • Cash and credit sales: €25,000 (excluding VAT), VAT 17%
  • Food sales: €5,000 (excluding VAT), VAT 3%
  • Gross salaries earned: €12,000
  • Employee social charges: 20% (€2,400)
  • Employer social charges: 24% (€2,880)
  • Accrued interest on loan: €200
  • Customer advance payment: €3,000 (for December catering)

November 30 Adjustments:

  • Accrue salaries for last week: €3,000
  • Accrue employee social charges: €600
  • Accrue employer social charges: €720
  • Accrue interest: €200

Required:

  1. Record all purchase transactions with proper VAT handling.

  2. Record all sales transactions with proper VAT handling.

  3. Record payroll transactions: a) Salaries earned and paid b) Social charges (employee and employer) c) Accruals at month end

  4. Calculate net VAT for November: a) VAT Payable (from sales) b) VAT Recoverable (from purchases) c) Net VAT to pay d) Record VAT payment

  5. Record unearned revenue transaction.

  6. Prepare current liabilities section of balance sheet (November 30).

  7. Analyze cash flow requirements: a) When are payments due? b) How much cash is needed? c) What are the payment deadlines?

  8. Explain Luxembourg compliance requirements: a) VAT filing deadlines b) Social charges payment deadlines c) PCN account classifications d) Documentation requirements

Cases​

Case 12-1: VAT Compliance Issues

Marie's restaurant is having trouble with VAT compliance. She's been:

  • Late filing VAT returns
  • Not tracking VAT by rate
  • Missing VAT deadlines
  • Receiving penalty notices

Questions for Analysis:

  1. What are the consequences of late VAT filing in Luxembourg?

  2. How should Marie track VAT by rate? What systems or procedures are needed?

  3. What steps should Marie take to ensure timely VAT filing?

  4. How can Marie prevent future VAT compliance issues?

  5. What professional help might Marie need?

  6. How does proper VAT accounting support business operations?

Case 12-2: Payroll and Social Charges Management

A Luxembourg SME is struggling with payroll and social charges:

  • Complex calculations
  • Multiple deadlines
  • High costs
  • Compliance concerns

Questions for Analysis:

  1. Why are social charges significant for Luxembourg businesses?

  2. How should payroll and social charges be calculated and recorded?

  3. What systems or procedures help manage payroll effectively?

  4. What are the payment deadlines and requirements?

  5. How can the business ensure compliance?

  6. What are the cost implications of social charges?

Solutions are published in supplementary/instructor/solutions/chapter_12_solutions.md.