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How do you calculate gst?

In Australia, GST is 10% of the value of the transaction. I seem to keep getting my calculations wrong even though I use 10%.

How do you calculate GST?

What am I doing wrong?

Posted in Accounting, asked by lefe, 5 years ago. 2641 hits.

0

This is a good question! Thanks for sharing it!

You are perfectly right in saying that GST is 10% of the value of the transaction. Where you are going wrong is not in the percentage you are using but in your method of calculation.

It all depends on whether the transaction includes or excludes the GST. Usually when you are provided with information on a particular transaction, the amount includes the GST already.

Let me break it down a little for you:
Price of the goods = 100%
GST portion = 10%
Total value of transaction = (price + GST) therefore 110%

If you can remember the following method, you will get every question correct from now on!!

Times by what you WANT; divide by what you've GOT.

Have a look at this example:
Loan granted by ABC Bank to purchase a vehicle for $33,000.

Value of transaction = $33,000 (i.e. 110% as it includes GST)
GST = 33,000 X 10 / 110 = $3,000
And therefore, price of the vehicle = 33,000 - 3,000 = $30,000

[We WANT 10%; we've GOT 110%]

On the odd occasion where GST is excluded from the value of the transaction, the method will still be the same i.e. times by what you WANT; divide by what you've GOT.

Have a look at this example:
Purchase stationery to the value of $500 (before GST).

Value of transaction = $500 (100% as GST has not been included)
GST = 500 x 10 / 100 = $50
And therefore the total price we will pay is = 500 + 50 = $550

[We WANT 10%; we've GOT 100%]

Hope that helps you!
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5 years ago
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