Simulation of the Influence of Inventory Valuation Methods on Vat Settlements in Retail Trade

Accounting standards allow enterprises to choose a more convenient inventory valuation method, which has a direct impact on the result of income tax calculation. Taking into account that the cost of stocks is formed at the time of their purchase and is accompanied by the right to a VAT credit, Council Directive 2006/112/EC recommends determining the VAT tax base not lower than the purchase price or, in its absence, not lower than the cost price. The Tax Code of Ukraine obliges taxpayers to calculate additional VAT liabilities on the difference between the purchase price and the sale price in the event that the latter is less than the purchase price, which in its essence is an identifiable cost, which is difficult to be estimated by enterprises that have chosen another inventory valuation method. The presented study reveals the economic essence of the relationship between VAT credit and VAT liabilities, explains the fiscal necessity of charging additional VAT obligations when selling goods below purchase price. Hypotheses regarding the impact of the chosen inventory valuation method on the receipt of funds from the payment of VAT obligations to the state budget at constant and increasing prices for the purchase of goods by taxpayers were formed in the papers, which were confirmed by means of analytical and simulation modeling. The latter was carried out by a developed program that simulates sales at the enterprise and calculates additional VAT if there is a sale below the cost price, simultaneously for three inventory valuation methods: FIFO, the method of the weighted average cost and the specific identification method. The obtained results of the study provide state authorities with arguments for changing tax legislation, which will allow EU and Ukrainian companies to adopt an optimal accounting policy with the aim of simplifying the accounting of VAT payments at enterprises.