By the end of this chapter, student should be

able to:
 Distinguish between trade discount, cash
discount and chain discount.
 Calculate the net price of goods purchased
and single discount that equivalent to a
chain discount.
 Determine the balance after partial
payments are made.
 Solve problems involving trade and cash
discounts.
 Retailers usually pay for the goods at prices
lower than the list prices.
 The prices that the retailers pay after
reduction in prices are called the net prices.
 The difference between the list price and the
net price is called trade discount;
 Trade discount = list price – net price
 A manufacturer normally quotes a discount
rate in percentage to the retailer.
 The rate is called the trade discount rate
which must be calculated on the list price.
 The list price of a leather belt is RM180. A
trade discount of 30% is offered. What is the
net price of the belt?

 Solution
List price = RM180
Trade discount = 30% × RM180 = RM54
Net price = list price – trade discount
= RM180 – RM54
= RM126
 As an alternative to the method discussed above,
the formula,
NP = L(1 – r) can be used to find the net price.
 The derivation of the formula is discussed as
follows.
Let net price = NP, list price = L,
trade discount = r%
From net price = list price – trade discount, we
get
NP = L – Lr
NP = L(1 – r)
 Weeny Jean offers a discount of 32% on all the jeans it
sells. What is the net price of a pair of jeans that is
listed at RM420?
 Solution
List price = RM420,
Trade discount = 32% × RM420 = RM135.45
Net price = list price – trade discount
= RM420 – RM135.45
= RM284.55
 Alternatively by using the formula, we get
NP = L(1 – r)
NP = 420(1 – 32%)
= 420 (1 – 0.3225)
= RM284.55
 The net price of a camera with 40% trade discount is
RM480. What is the list price?

 Solution
Let the list price be RMX. Hence, trade discount = 0.4X.
Net price = list price – trade discount
480 = X – 0.4X
480 = 0.6X
X = 480/0.6 = RM800
Hence, the list price is RM800.
 Alternatively by using the formula, we get
NP = L(1 – r)
480 = L(1 – 40%)
L = RM800 = list price
 A bill of RM1,200 including a prepaid
handling charge of RM200 is offered a trade
discount of 15%. What is the net price?

 Solution
Trade discount = 0.15 × RM1,000 = RM150
(It should be noted that the discount is based
on the cost of goods, excluding any other
costs.)
Net price = (RM1,000 – 150) + 200
= RM1,050
 Blue Danube sells an item for RM100 less 20% while
competitor, Yellow River sells the same item for RM120 less
40%.
(a) Find the net prices of the item for the two shops.
(b) What further discount percentage must be offered by the
shop that sells at a higher net price in order to meet the
competitor’s price?

 Solution
(a) Blue Danube: Net price = 100(1 – 20%) = RM80
Yellow River: Net price = 120(1 – 40%) = RM72
(b) Blue Danube sells at a higher net price.
Let the additional discount per cent be r%. Therefore
72 = 100(1 – r)
r = 28%
Hence, Blue Danube must offer an additional 8% to meet its
competitor’s price.
 Multiple discounts are often offered to the
retailers on the same goods by the
manufacturers or wholesalers.
 A computer is advertised for RM4,800 less
20% and 10%. Find (a) the net price, (b) the
total discount.
 Solution
(a) List price = RM4,800
Less 20%: 0.20 × RM4,800 = 960
Balance = RM4800 – RM960 = 3,840
Less 10%: 0.10 × RM3,840 = 384
Net price = RM3840 – RM 84 = RM3,456.
 (b) Total discount = RM4,800 – RM3,456 =
RM1,344
 For an item listed at L ringgit less r1%,
r2% and r3%, the net price NP is given by
NP = L(1 – r1)(1 – r2)(1 – r3)
 A television set with a catalogue price of
RM2,500 is offered a chain discount of
30%, 10% and 5%. Calculate the net price.
 Solution
From NP = L(1 – r1)(1 – r2)(1 – r3), we get
net price = 2,500 (1 – 30%)(1 – 10%)(1 –
5%)
= 2,500(0.7)(0.9)(0.95)
= RM1,496.25
 A washing machine is advertised at RM2,000 less 40%, 12% and
2.5%. Find the net price.
 Solution
From NP = L(1 – r1)(1 – r2)(1 – r3), we get
net price = 2,000 (1 – 40%)(1 – 12%)(1 – 2—1%)
= 2,000(0.6)(0.88)(0.975)
= RM1,029.60
 Alternatively, the net price can be obtained as follows.
List price = RM 2,000.00
Less 30%: 0.40 × RM2,000 = RM 800.00 –
RM 1,200.00
Less 12%: 0.12 × RM1,200 = RM 144.00 –
RM 1,056.00
Less 2.5%: 0.025 × RM1,056 = RM 26.40 –
Net price = RM 1,029.60
 A single discount equivalent is a single
discount which is equivalent to a chain
discount. The single discount equivalent, r,
for a chain discount of r1, r2 and r3 is given
by
r = 1 – (1 – r1)(1 – r2)(1 – r3)
 A product is advertised at RM1,500 less 20%, 10% and
5%. Find
(a) the single discount equivalent,
(b) the net price.
 Solution
(a) From r = 1 – (1 – r1)(1 – r2)(1 – r3), we get
single discount equivalent = 1 – (1 – 0.20)(1 – 0.10)(1 –
0.05)
= 1 – (0.80)(0.90)(0.95)
= 1 – 0.684
= 0.316 = 31.6%
(b) From NP = L(1 – r), we get
net price = 1,500 (1 – 31.6%) = RM1,026
 Find the single discount equivalent of 10%
and 3%.
 Solution
From r = 1 – (1 – r1)(1 – r2), we get
r = 1 – (1 – 10%)(1 – 3%)
= 12.7%
 Wholesalers, manufacturers and even retailers
offer reductions on the amount due to customers
who pay their bills within a stipulated period of
time. This is to encourage prompt payment of
bills.
 The credit terms which
 comprise the cash discount rate and the credit
perio are usually shown in the invoice.
 If the bill is settled within the specified period,
the buyer needs only to pay the net amount after
deducting the cash discount from the amount in
the invoice.
 Explain the cash discount terms
(a) 2/10, 1/30, n/60, (b) net 30.
 Solution
(a) This term means 2% of the net price may be
deducted if the invoice is paid within 10 days of the date
of the invoice; 1% may
be deducted if the invoice is paid between the 11th and
30th day;
and the full amount must be paid by the 60th day. After
the 60th
day, the bill is overdue.
(b) Net 30 means payment is due within 30 days of the
invoice date.
 An invoice dated 2 January 2009 for RM4,010 was
offered cash discount terms of 1/10, n/30. If the invoice
was paid on 11 January 2009, what was the payment?
 Solution
Since the invoice was paid 9 days after the date of the
invoice (within the discount period), the buyer was
entitled to a 1% cash discount.
Cash discount = 0.01 × RM4,010 = RM40.10
Payment = invoice amount – cash discount
= RM4,010 – RM40.10
= RM3,969.90
The payment was RM3,969.90.
 An invoice dated 10 April 2009 for RM2,300 is offered cash discount
terms of 3/10, 2/20, n/60. Find the payment if the invoice is paid on
28 April 2009.
 Solution
Since the invoice is paid 18 days after the date of the invoice, a cash
discount of 2% is obtained. The buyer does not get the 3% cash
discount as the invoice is not paid within the 3% discount period of
10 days.
Net payment = net price – cash discount
= 2,300 – (0.02 × 2,300) = RM2,254
The amount of payment is RM2,254.
 The total of an invoice with cash discount terms of 3/10,
n/30 amounts to RM2,090 which includes a prepaid
freight charge of RM50. Find the amount that is needed
to pay the invoice within the cash discount period.
 Solution
Total amount including freight charge = RM2,090.00
Freight charge = RM
50.00 –
Cost of goods = RM2,040.00
Cash discount = 3%(2,040) = RM 61.20 –
= RM1,978.80
Freight charge = RM 50.00 +
Amount to be paid = RM2,028.80
 Many companies borrow from banks using
short-term loans to take advantage of the
cash discounts offered.
 Anwar purchases some goods valued at RM2,000 with cash discount
terms of 5/10, n/60. What will be the annualised cost of the credit if
the cash discount is not taken?
 Solution
Cash discount not taken = 5% × 2,000 = RM100
Credit period = 60 – 10 = 50 days
From the formula I = Prt, we get
100 = 1,900 × r × 50/365
r = 38.42%
Hence, the annualised cost of credit is 38.42%.
 Alternatively, the following formula can be used.
Annualised cost = (Discount per cent)/(100 – Discount per cent)
x 360/(Credit period)
= 5%/95% x 360/50
= 37.9%
 On 20 May, Mei Lan purchased some goods invoiced at RM3,000
with cash discount terms of 3/10, n/30. In order to pay the invoice
on 30 May, she borrowed the money for 20 days at 9% per annum
simple interest. How much did she save by borrowing to take
advantage of the discount?

 Solution
Cash discount = 3% × 3,000 = RM90
Principal borrowed = RM3,000 – RM90 = RM2,910
(Why she borrows RM2,910 instead of RM3,000? Because she
entitles for 10% cash discount)
Credit period = 30 days – 10 days = 20 days
Interest incurred on the borrowing = Prt = 2,910 × 0.09 × 20/365
= RM14.35
Amount saved = cash discount – interest
m= RM90.00 – RM14.35
= RM75.65
 If a buyer pays only part of the invoice
within the discount period, he receives a
proportionate fraction of the cash discount
that is offered.
 He will only receive the full amount of the
cash discount if he settles all the payment.
 An invoice amounting to RM3,000 and dated 15 July 2012 offers
cash discount terms of 10/15, n/30. Find the amount outstanding if
the buyer pays RM1,000 on 20 July 2012.
 Solution
Method 1
Cash discount offered = 10% × 3,000 = RM300
The buyer pays RM1,000 on 20 July 2012. Hence he is entitled to
the cash discount offered. Since the RM1,000 payment could not
settle all the amount due, he is only entitled to a proportionate
fraction of the cash discount offered. If he makes a payment of
RM2,700(RM3,000 – RM300), he will receive RM300 cash discount.
Since he pays only RM1,000, he is only entitled to a cash discount of
(1,000/2700) × 300 = RM111.11.
 Hence, the amount outstanding = RM3,000 – RM1,111.11 =
RM1,888.89
 Method 2
The following equation can also be used, that
is
Amount paid = (credit given) × (1 – discount rate)
Since the amount paid was RM1,000 and
discount rate was 10%, then
1,000 = (Credit given) × (1 – 10%)
Credit given = 1,000 /(90%) = RM1,111.11
Hence, the amount outstanding = RM3,000 –
RM1,111.11 = RM1,888.89
 More often than not, trade and cash
discounts are offered simultaneously to a
buyer.
 An invoice of RM10,000 and dated 18 April 2012 is offered
25% trade discount and cash discount terms of 9/10, n/30.
Find
(a) the trade discount offered,
(b) the cash discount offered,
(c) the net payment if the invoice is paid on 28 April 2012.
 Solution
(a) Trade discount = 0.25 × 10,000 = RM2,500
(b) Cash discount = 9% (10,000 – 2,500) = RM675
(c) Since the payment date falls within the cash discount
period, he
would get the 9% cash discount. Thus,
net payment = 10,000 – (2,500 + 675)
= RM6,825
 An invoice of RM9,000 dated 19 April 2012 is offered
13% trade discount and cash discount terms of 3/10,
n/30. Find the net payment if the invoice is paid on 30
April 2012.

 Solution
Trade discount = 0.13 × 9,000 = RM1,170
The buyer does not receive any cash discount since the
last date to receive cash discount is 29 April 2012. He
only receive the trade discount. Thus,
net payment = RM9,000 – RM1,170
= RM7,830
1. Trade discount = list price – net price
Or
Net price = list price – trade discount
2. Net price, NP = L (1 – r)
where,
L = list price
r = trade discount
3. For chain discounts r1, r2, r3,
net price, NP = L (1 – r1)(1 – r2)(1 – r3)
4. Single discount equivalent, r, for a chain discount of r1, r2, and r3 is
r = 1 – (1 – r1)(1 – r2)(1 – r3)
5. Cash discount 2/10, 1/30, n/60 means 2% of the net price may be
deducted if the invoice is paid within ten days of the invoice date;
1% may be deducted if the invoice is paid between the 11th and
30th day; and the full amount must be paid by the 60th day.
6. Borrowing to take advantage of the cash
discount:
Amount saved = cash discount – interest
Interest = (Invoice amount – cash discount) ×
r × credit period
7. Partial payment of invoice:
Amount paid = credit given × (1 – discount
rate)
Amount outstanding = Invoice amount –
credit given