Question

Surfs Up P/L is a national retailer that sells a range of surfing and water sport equipment
(surfboards, clothing, etc.) with an annual turnover of $60 million. Surfs Up purchases “Billapro”
surfboards for $440 each from Billapong P/L, a large manufacturer of surfboards located at Gold
Coast with an annual turnover of around $45 million, this was their only sale for the month. Surfs
Up plans to sell the Surfboards at a 200% mark-up to its customers. In October last year it
purchased 370 surfboards but a couple of months later (December) they discovered that 14 of the
surfboards were faulty and subsequently returned these faulty surfboards to the manufacturer,
obtaining a full refund. Assume both apply the accrual method of accounting.
Requirement:
Explain the GST consequences of this arrangement for both companies.

Answer 1

Consequence for Billapong P/L :-

When Goods sold by Billapong P/L in the month of October :-

Billapong P/L had sold the goods to Surfs Up P/L in the month of October and included in GST liability for the month of October and Paid GST thereon.

When Goods returned by the Surfs Up P/L in the month of December:-

In the month of December when Surf Up P/L returned faulty surfboards it issued credit note to Billapong. When billapong received credit note it reduced its GST Liabiltiy for such Credit Note from the GST Liability for the month of December.

Consequence for Surf Up P/l:-

When Goods purchased by Surfs Up P/L in the month of October :-

When surfboard were purchased in the month of October it booked Input Tax Credit on 370 surfboards purchased and adjusted the same from output GST Liability.

When Goods returned to the Billapong P/L in the month of December:-

When Surf Up P/L returnd 14 faulty surfboards to Billapong P/L it issued a credit note to Billapong P/L and it will reversed its GST Input Tax Credit in the month of December for the goods purchased in the month of october and returned in the month of December.