1. **State the problem:** Determine the VAT payable by ABC Company for the 1st quarter of 2018 given sales, purchases, and inventory data from 2017. 2. **Relevant formula and rules:** VAT Payable = Output VAT - Input VAT - Output VAT is VAT collected on sales. - Input VAT is VAT paid on purchases and inventory from VAT-registered suppliers. - VAT rate is typically 12% (assumed standard rate). - Only purchases and inventory from VAT-registered suppliers have input VAT. 3. **Calculate Output VAT:** Sales (net) = 5,000,000 Output VAT = 12% of sales = $5,000,000 \times 0.12 = 600,000$ 4. **Calculate Input VAT:** Purchases (net) from Jan-Mar 2017 = 2,000,000 Inventory from VAT-registered suppliers = 500,000 Total VATable purchases = $2,000,000 + 500,000 = 2,500,000$ Input VAT = 12% of total VATable purchases = $2,500,000 \times 0.12 = 300,000$ 5. **Determine VAT payable:** VAT Payable = Output VAT - Input VAT = $600,000 - 300,000 = 300,000$ 6. **Conclusion:** The VAT payable by ABC Company for the 1st quarter of 2018 is 300,000.