Value Added Tax (VAT) is indirect tax. VAT is called as a destination based tax (Consumption Based Tax). VAT is levied on value addition at each stage of production of goods and services which involves sale or purchase. The term 'value addition' implies the increase in value of goods and services at each stage of production or transfer of goods and services. VAT is a tax ultimately borne by the consumer or end user who purchases the goods / services.

For example: A farmer grows a wheat and sell it to a flour manufacturer at Rs.50, who convert the wheat into wheat flour and sell it the consumer or end user at Rs.120. Here the value added is Rs.70 (Sales price (Rs.120) Minus Purchase Price (Rs.50). In this case, the tax will be levied on Value addition i.e. Rs.70.

A cash budget is a plan showing the cash receipts and prospective cash expenses planned (cash expenses include expenses paid, loan repayment etc.), it includes items which are regular in nature whereas capital budget is a plan for the expenditures and income which are not regular in nature i.e. generally for a longer period of time like purchase of plant and machinary, building etc.

The chartered accountant would have advised them to prepare a partnership agreement. The partnership agreement may have following four inportant items besides name, nature and place of business.

1) Contribution made by each partner as a part of initial capital.

2) Profit / loss sharing details for each partner.

3) Partner's authority.

4) Decision making process with reference to partnership firm.

5) Process to be following in case of withdrawal / death of the partner.

Gross working capital is sum of all current assets of the firm so we need to add all current assets to calculate gross working capital as follows.

Gross working capital

= Cash + Debtors + Short Term Inv + Stocks

= Rs (20000+50000+30000+70000)

= Rs 170000.

Net working capital

= Current Assets - Current Liabilities

= Rs 170000 - (5000 + 15000 + 4000)

= Rs 146000.