How do you obtain the net value from a 20% gross value?

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Prepare for the AAT Level 2 Bookkeeping Test with flashcards and multiple choice questions. Each question includes hints and explanations to improve your understanding and readiness for the exam.

Multiple Choice

How do you obtain the net value from a 20% gross value?

Explanation:
When you have a gross value that includes 20% VAT, the net value is the amount before VAT. The relationship is gross = net × 1.20, so to obtain the net from the gross you divide by 1.20. For example, if the gross amount is 120, the net is 120 ÷ 1.20 = 100. Multiplying by 1.2 would give the gross from the net, not the net from the gross, and dividing by 0.8 or 0.95 would reflect other VAT rates (25% or 5%), not 20%.

When you have a gross value that includes 20% VAT, the net value is the amount before VAT. The relationship is gross = net × 1.20, so to obtain the net from the gross you divide by 1.20. For example, if the gross amount is 120, the net is 120 ÷ 1.20 = 100. Multiplying by 1.2 would give the gross from the net, not the net from the gross, and dividing by 0.8 or 0.95 would reflect other VAT rates (25% or 5%), not 20%.

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