How do you obtain the net value from a 5% gross value?

How do you obtain the net value from a 5% gross value?

• A. Value / 1.05
• B. Value * 1.05
• C. Value / 1.15
• D. Value / 0.95

Answer: (A)

When a value is gross, it includes the 5% tax. To obtain the net value before tax, you undo the tax by dividing by 1.05. This works because gross = net × 1.05, so net = gross ÷ 1.05. For example, if the gross amount is 105, the net is 105 ÷ 1.05 = 100. Dividing by 1.05 removes the 5% portion; multiplying by 1.05 would add tax, and using 1.15 or dividing by 0.95 would not correctly remove the 5% tax.

When a value is gross, it includes the 5% tax. To obtain the net value before tax, you undo the tax by dividing by 1.05. This works because gross = net × 1.05, so net = gross ÷ 1.05. For example, if the gross amount is 105, the net is 105 ÷ 1.05 = 100. Dividing by 1.05 removes the 5% portion; multiplying by 1.05 would add tax, and using 1.15 or dividing by 0.95 would not correctly remove the 5% tax.