TRADE AND CASH DISCOUNT

LEARNING OUTCOMES

By the end of this chapter, you should be able to

1. explain trade and cash discounts terms
2. calculate the trade discount and net price of goods purchased
3. find single discount that is equivalent to a chain discount
4. determine the cash discounts obtained based on the given situations
5. compute the total amount of payment after deducting the trade and cash discounts

TRADE DISCOUNT

Deduction from the list and it is usually given to buyer for the following reason:
• To clear old or spoilt items
• To compare with another sellers
• To encourage bulk purchase

There are two types of trade discount:

• Single discount
• Chain or series discount

Single discount

Trade discount amount = 𝐿𝑖𝑠𝑡 𝑝𝑟𝑖𝑐𝑒 × 𝑡𝑟𝑎𝑑𝑒 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒

= 𝐿𝑟
Therefore,
𝑁𝑒𝑡 𝑝𝑟𝑖𝑐𝑒 = 𝐿𝑖𝑠𝑡 𝑝𝑟𝑖𝑐𝑒 − 𝑡𝑟𝑎𝑑𝑒 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑎𝑚𝑜𝑢𝑛𝑡
= 𝐿 − 𝐿𝑟
= 𝐿(1 − 𝑟)

Example A

1. A baju kurong, listed at RM99.00, is offered a trade discount of 20%. Find the trade
discount amount and the net price.

Trade discount amount = 99 x 0.2 =RM19.8

Net Price = 99 -19.8 = RM79.2 @ = 99(1- 0.2)

2. The list price of a laptop is RM2999. If the manufacturer offered a 20% trade discount,
what are the trade discount amount and the net price?

Trade discount amount = 2999 x 0.2 =RM599.80

Net Price = 2999-599.80 = RM2399.20 @ =2999 (1-0.2)

3. The net price of a gumball machine with a 10% trade discount is RM1500. What is the list
price?

L(1 − r ) = 1500
L(1 − 0.1) = 1500
1500
L=
1 − 0.1
L = RM 1666 .67

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Chain Discount

Definition: trade discount in a series of two or more successive discount.

Formulae:

Net Price= 𝐿(1 − 𝑟1 )(1 − 𝑟2 )(1 − 𝑟3 )

Trade discount amount = L – Net price

Example B

1. A machine listed RM5000 is offered a trade discount at 10% and 7%. Find the net price.

Net Pr ice = 5000 (1 − 0.1)(1 − 0.07 )

= RM 4185
@

5000-5000(0.1)=5000-500=4500
4500-4500(0.07)=4500-315=RM4185

tda=500+315=RM815 = 5000-4185

2. The list price of a camera is RM3950, with trade discount at 10%, 6% and 3%. Find
a) the net price.

Net Pr ice = 3950 (1 − 0.1)(1 − 0.06 )(1 − 0.03)

= RM 3241 .45

b) the trade discount amount

Tda = 3950 − 3241 .45 = RM 708 .55

3. The net price of a kitchen cabinet is RM3050 with trade discounts at 20%, 15% and 5%.
Find the price before discount.

L(1 − 0.2)(1 − 0.15)(1 − 0.05) = 3050

3050
L=
(1 − 0.2)(1 − 0.15)(1 − 0.05)
L = RM 4721 .36

Single Discount Equivalent to Chain Discount

The formula of single discount rate that is equivalent with the chain discount rates ( if 3 discount
rates are given) is given as:

𝑟 = 1 − (1 − 𝑟1 )(1 − 𝑟2 )(1 − 𝑟3 )

where r = single discount equivalent and r1, r2, r3 = chain discount.

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Example C

1. Find the single discount, r which is equivalent to the chain discount of 30% and 10%.

r = 1 − (1 − 0.3)(1 − 0.1)
= 37%

2. Find the single discount, r which is equivalent to the chain discount of 20%, 12% and 8%.

r = 1 − (1 − 0.2)(1 − 0.12 )(1 − 0.08 )

= 35.23%

CASH DISCOUNT

Cash discount usually offered to customer to encourage early payment of bills. The cash
discount is stated in the credit term as invoice issued to a buyer. The examples of credit term
are as follows:

Example 1: 2/10, n/30

o 2% discount will be given if customer made a payment within 10 days from date of
invoice.
o Full amount of price or net with no discount must to pay from day-11 to 30 of invoice
date.
o Credit period is 30 days from date of invoice.
Example 2: 3/10, 1/15, n/30
o 3% discount will be given if customer made a payment within 10 days from date of
invoice.
o 1% discount will be given if customer made a payment between day-11 until day-15
from date of invoice.
o Full amount of price or net with no discount must be paid between day-16 until day-30
from date of invoice.
o Credit period is 30 days from date of invoice.

Example D

1. An invoice of RM5,900, dated on 5th July 2010 with term of cash discount 10/10, n/30. If
the payment is made on 10th July 2010, find the amount of payment.

5/7/2010 −> 10/7/2010 : 5 days −> entitled 10% cash discount

Amount of payment = 5900 (1 − 0.1) = RM 5310

2. A total of an invoice with cash discount terms of 6/10, n/30 amounts to RM4,550 which
includes transportation cost of RM150. Find the amount needed to pay the invoice within
the cash discount period.

Within cash discount period −> entitled 6% cash discount

Amount of payment = (4550 − 150 )(1 − 0.06 ) + 150 = RM 4286

***Transportation costs (@ freight charges) are NOT subjected to discounts. Hence, to

calculate discount we should FIRST subtract the transportation cost (if any) to find the list price,
L and add up it again at the end to find the amount of payment.

3. A total of an invoice with cash discount terms of 6/10, n/30 amounts to RM1090 which
excludes transportation cost of RM550. Find the amount needed to pay the invoice within
the cash discount period.

Amount of payment = (1090 )(1 − 0.06 ) + 550 = RM.........

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TRADE AND CASH DISCOUNTS

1. An invoice of RM5,500 dated on 7th August 2010 is offered 13% trade discount and cash
discount terms of 5/10, 2/20, n/30. The transportation cost is RM200. Find the amount of
payment if the invoice is paid on 22nd August 2010.

net price = 5500 (1 − 0.13) = 4785

7/8/2010 −> 22/8/2010 : 15 days −> entitled 2% cash discount
Total payment = 4785 (1 − 0.02) + 200 = RM4889.30

OR

Total payment = 5500 (1 − 0.13 )(1 − 0.02 ) + 200

= RM 4889 .30

2. An invoice of RM13,700 dated on 17th July 2009 was offered 15% trade discount and cash
discount terms of 8/10, 15/25, n/30. The transportation cost included in the invoice is
RM200. Find the net payment if the invoice is paid on 22nd July 2009.

17/7/2009 −> 22/7/2009 : 5 days −> 8% cash discount

Net payment = (13700-200)(1-0.15)(1-0.08)+200=RM10,757

3. An invoice of RM10,000 includes freight cost of RM150, dated 18 April 2015 is offered 25%
trade discount and cash discount terms 9/10, n/30. Find

a) the list price

L= 10000-150=RM9850

b) the trade discount amount

tda=9850 x 0.25 = RM2462.50

c) the net price

np = 9850-2462.50 = RM7387.50 (net price is a price after deducting the trade discount
amount)

d) the cash discount amount

cda = 7387.50 x 0.09=RM664.88

e) the amount of payment if the invoice is paid on 28 April 2015

payment=L(1-r)(1-c)+C=(9850)(1-0.25)(1-0.09)+150= RM6872.63

Exercise

1. The net price of an item after a trade discount of 10% and 5% was RM2,000. The invoice
was dated 23 June 2012 with cash terms of 3/10, n/30. The transportation charge is
RM200. (i) Find the list price of the item, (ii) Calculate the last day to receive the 3% cash
discount, (iii) amount of payment if the invoice was paid on 30th June 2012.
RM2339.18; 3 JULAI 2016; RM2140
2. CT Computer ordered 20 units of laptop computers and received an invoice dated 25
January 2011 for RM50,000 (excluding transportation cost) with cash discount terms of
8/15, n/30 and trade discount 10% and 6%. The transportation cost was RM1,584. (i) Find

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 the last date to receive the cash discount, (ii) Calculate the net price, (iii) Determine the
total payment if CT Computer paid the invoice on 7 February 2011.
9 February 2011, RM2115; RM40500

3. The invoice of RM4,500 dated 26 May 2012 has trade discounts of 11%, 9% and cash
discount terms of 4/10, 2/20, n/30. The payment was made on 13 June 2012. Find the (i)
single discount equivalent to the trade discounts given, (ii) net price after deducting the
trade discounts, (iii) total payment on 13 June 2012.
19.01%; RM3644.55; RM3571.66

4. On 14 June 2012, GG Truck Company received an invoice for the following items.

Item Quantity List Price Per Unit (RM)

Sport Rim 12 160
Tyre 15 110
Battery 8 180

The transportation cost is RM400. The company received trade discounts of 10% and 15%
and cash discount terms of 4/10, n/30. Calculate (i) the single discount rate equivalent to
the given trade discounts, (ii) the last date to get the 4% cash discount, (iii) the amount of
trade discount received, (iv) the amount of payment was made on 20 June 2012.
23.5%; 24 June 2012; RM1177.35; RM4079.34

5. On 13th August 2012, a retailer received an invoice and the list price of goods bought was
as follows:
Items RM
Clerical chair 850
Executive table 720
Cabinet 950
Executive chair 1150

The delivery cost was RM100. The trade discounts given were 10%, 5% and the cash
discount terms were 5/10, 2/20, n/30. (i) Find the net price after trade discount and the
amount of discount, (ii) Determine the final dates for each cash discount rates (iii) Find the
amount paid to settle the invoice if payment is made on 30th August 2012.
RM3137.85; RM532.15; 23 August 2012; 2 September 2012; RM3175.09

6. The total trade discounts for an item after x% and 5% trade discount is RM 200. Find x if the
list price is RM 1,500.
8.77%

7. The net price of a massage chair after trade discounts of 10% and 5% is RM 2,999. Find the
list price.
RM3507.60

8. An invoice of RM35,000 including shipping cost of RM1,500 is offered a trade discount of

25% and cash discount terms of 8/10, 4/20, n/30. If the invoice was dated 31 December
2014, and the payment was settled 2 weeks later, find i) the amount of trade discount ii) the
total payment.
RM8375; RM25620

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