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Chapter 27 – Exercises & Cases

Multiple Choice Questions​

  1. Luxembourg's standard VAT rate is: a) 15% b) 17% c) 19% d) 20% Answer: b) Luxembourg's standard VAT rate is 17%.

  2. Which VAT rate applies to wine in a restaurant? a) 17% b) 14% c) 8% d) 3% Answer: b) Wine in restaurants is subject to 14% VAT.

  3. VAT registration is mandatory when annual turnover exceeds: a) €25,000 b) €35,000 c) €50,000 d) €100,000 Answer: b) VAT registration is mandatory when annual turnover exceeds €35,000.

  4. Account 44581 in PCN represents: a) Input VAT recoverable b) VAT on sales (output VAT) c) VAT payable d) VAT refundable Answer: b) Account 44581 represents VAT on sales (output VAT).

  5. Which account is used for input VAT recoverable? a) 44571 b) 44581 c) 44551 d) 44561 Answer: c) Account 44551 is used for input VAT recoverable.

  6. eCDF filing is: a) Optional b) Mandatory for all VAT returns c) Only for large businesses d) Only for quarterly filers Answer: b) eCDF filing is mandatory for all VAT returns.

  7. Intra-EU B2B supplies are: a) Subject to 17% VAT b) Zero-rated (0% VAT) c) Subject to customer's country VAT d) VAT-exempt Answer: b) Intra-EU B2B supplies are zero-rated when customer provides valid EU VAT number.

  8. If input VAT exceeds output VAT: a) Pay the difference b) Receive a refund c) Carry forward to next period d) No action needed Answer: b) If input VAT exceeds output VAT, you are entitled to a refund.

  9. The SME VAT Scheme is available for businesses with turnover up to: a) €35,000 b) €50,000 c) €75,000 d) €100,000 Answer: b) SME VAT Scheme is available for businesses with turnover up to €50,000.

  10. VAT on basic foodstuffs (bread, milk) is: a) 17% b) 14% c) 8% d) 3% Answer: d) Basic foodstuffs are subject to 3% VAT (super-reduced rate).

Questions​

  1. Explain Luxembourg's four-tier VAT rate structure. Provide examples of goods/services for each rate.

  2. When is VAT registration mandatory? What are the benefits of voluntary registration?

  3. Describe the SME VAT Scheme. What are its benefits and limitations?

  4. How do you record VAT on a cash sale? Show the PCN accounting entries.

  5. Explain the difference between output VAT and input VAT. How are they used to calculate net VAT?

  6. Describe the VAT return filing process through eCDF. What information is required?

  7. How does VAT work for intra-EU B2B transactions? What is reverse charge?

  8. Explain sector-specific VAT rules for restaurants. How do rates differ for food, wine, and non-alcoholic beverages?

  9. How are VAT transactions recorded in PCN? Which accounts are used and why?

  10. What are the most common VAT errors? How can businesses avoid them?

Problems Set A​

Problem 1: VAT Rate Application​

Determine the correct VAT rate for the following:

  • Restaurant meal
  • Bottle of wine (restaurant)
  • Bottle of water (restaurant)
  • Book purchase
  • Legal services
  • Basic foodstuffs (bread, milk)

Solution Guide:

  • Restaurant meal: 17%
  • Bottle of wine (restaurant): 14%
  • Bottle of water (restaurant): 8%
  • Book purchase: 8%
  • Legal services: 17%
  • Basic foodstuffs: 3%

Problem 2: VAT Calculation​

Calculate VAT for the following transactions: a) Sell €100 goods (17% VAT) b) Sell €50 services (17% VAT) c) Purchase €200 inventory (17% VAT) d) Purchase €100 equipment (17% VAT)

Solution Guide: a) Price: €100, VAT: €17.00, Total: €117.00 b) Price: €50, VAT: €8.50, Total: €58.50 c) Price: €200, VAT: €34.00, Total: €234.00 d) Price: €100, VAT: €17.00, Total: €117.00

Problem 3: VAT Return Calculation​

Calculate net VAT for the period:

  • Output VAT: €2,000
  • Input VAT: €1,200
  • Net VAT: ?

Solution Guide:

  • Net VAT = €2,000 - €1,200 = €800 (payable)

Problems Set B​

Problem 1: Multi-Rate Invoice​

Create a restaurant invoice with:

  • Food: €50 (17% VAT)
  • Wine: €30 (14% VAT)
  • Water: €5 (8% VAT)

Show total VAT and total amount due.

Problem 2: VAT Return Preparation​

Prepare a quarterly VAT return with:

  • Sales: €20,000 (17% VAT)
  • Purchases: €12,000 (17% VAT)
  • Services: €3,000 (17% VAT)

Calculate output VAT, input VAT, and net VAT.

Problem 3: Cross-Border Transaction​

A Luxembourg business sells €5,000 goods to a French business (VAT number: FR12345678901). Explain the VAT treatment and show accounting entries.

Comprehensive Problem​

Case: Restaurant VAT Compliance

Le Petit Bistro needs to:

  1. Determine correct VAT rates for all menu items
  2. Record VAT on sales and purchases
  3. Prepare quarterly VAT return
  4. File through eCDF
  5. Pay net VAT due

Requirements:

  • Calculate VAT for mixed-rate sales
  • Record all VAT transactions in PCN
  • Prepare VAT return
  • Identify any errors or issues
  • Recommend improvements

Deliverables:

  • VAT rate schedule for menu items
  • PCN accounting entries
  • Completed VAT return
  • Error analysis
  • Recommendations

Note: Complete solutions are available in the solutions manual.

End of Chapter 27 Exercises