TOPIC 6 TRADE AND

CASH DICOUNT

Prepared by : Muhammad Shahimi Bin Ariffin

 INTRODUCTION

• A discount is money deducted from money owed.

• Retailers give discounts to attract more customers.
• Effective use of trade and cash discounts enable wholesalers and
retailers to retain their loyal customers, and at the same time to attract
new customers.
 TRADE DISCOUNTS

MANUFACTURER/
FACTORY
RETAILER

DISTRIBUTOR
CONSUMER
 TRADE DISCOUNTS
• Trade discount is an amount deducted from list price of an item.
• Price listed in the invoice issued by manufacturers/wholesalers are called the list
price (LP).
• Retailers pay for the goods at prices lower than the list price.
• The price after deducting trade discount from the list price is called the net price
(NP).
• These trade discounts are only applicable to the list price of the items. It does
not include other costs such as cost of transportation, insurance, cost of storage,
etc.
The Formula
The amount of trade discount, 𝐷
𝐷 = 𝐿𝑃 − 𝑁𝑃
 Sometimes, manufacturer quotes a discount rate in percentage to the retailer.
 The rate is called the trade discount rate, 𝒅.
𝐷 = 𝐿𝑃 × 𝑑
 For calculating NP, we use this formula :
𝑁𝑃 = 𝐿𝑃 − 𝐷 or 𝑁𝑃 = 𝐿𝑃(1 − 𝑑)
Example 1

The list price of a radio is RM2,790. The retailer offers a 5% trade discount. Find:
a) Trade discount
b) Net price
Example 2

The list price of a handbag is RM320. If a trade discount of 10% is offered, find the
net price and the trade discount.
Example 3

The net price of a portable game with a 15% trade discount is RM200. Find the list price.
Example 4
A bill of RM1,200 including prepaid handling charge of RM200 is offered trade discount of
15%, find
a) The net price.
b) The total amount paid.
CHAIN/SERIES DISCOUNT

• Chain/series discount is a trade discount in a series of two or more successive

discount.
𝑵𝑷 = 𝑳𝑷(𝟏 − 𝒅𝟏 )(𝟏 − 𝒅𝟐 )(𝟏 − 𝒅𝟑 )
where : 𝑑1 , 𝑑2 , 𝑑3 = 𝑡𝑟𝑎𝑑𝑒 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡
Example 5
In a sales promotion, a sofa set of RM8,000 was offered chain discount of 10%, 8.5%, 6%.
Find
a) Net price.
b) Trade discount.
Example 6
A net price of an item is RM538.65. Discount offered was 30%, 10%, 5%. Find
a) List price
b) Amount of discount.
Example 7

The list price of a wrist watch is RM150. A seller bought 10 units of these watches with trade
discounts of 20%, X%. if trade discount amount obtained is RM480, find value of X.
 A single discount equivalent is a
SINGLE DISCOUNT EQUIVALENT single discount which is
equivalent to a chain discount.

FORMULA : 𝒅 = 𝟏 − 𝟏 − 𝒅𝟏 𝟏 − 𝒅𝟐 𝟏 − 𝒅𝟑
where : 𝑑 = 𝑠𝑖𝑛𝑔𝑙𝑒 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒
𝑑1 , 𝑑2 , 𝑑3 = 𝑡𝑟𝑎𝑑𝑒 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒
Example 9
A video camera is advertised at RM5,600 less 20%, 10%, 5%, find
a) Single discount equivalent
b) Net price
c) Trade discount amount.
 CASH DISCOUNT
• Cash discount (C) – discount given by manufacturers and wholesalers to the retailers to
pay their bills or invoice within a stipulated period (to encourage prompt payments of bills).
• The credit terms which comprise the cash discount rate and the credit period are usually shown
in the invoice.

• Invoice – a document sent to the buyer that describes the goods and identifies the
condition of sale and the net amount owed to the seller.

• Credit terms – the conditions agreed by the buyer and seller concerning the rate of
discount (cash discount rate), time limit for the discount (credit period), and information
about shipping. (Example : 2/10,1/30,n/60 )
 Example 10
Explain the cash discount term of 3/10, 1/15, n/30 and state the credit period.

Solution
3/10 3% cash discount will be given if payment is made within 10 days
from the date of invoice.
1/15 1% cash discount will be given if payment is made between the 11th
and 15th day.
n/30 Full amount must be paid by the 30th day. After the 30th day the bill is
overdue.
Credit period
Example 11

An invoice of RM2,680 dated 10 March 2018 was offered cash discount terms of 10/15, n/30.
Find the amount of payment if the invoice was paid on
a) 24th march 2018
b) 1st April 2018.
Example 12

Noriz received an invoice of RM8,500 with cash discount terms of 10/10, 5/15, n/30.
Find the amount of payment made two weeks from the date of invoice.
Example 13

En. Zaidi received an invoice for RM1680 which offered 10% trade discount and cash discount terms
of 10/5, 6/10, n/30. If he paid the invoice 6 days after the date of the invoice, find the amount of the
payment.
Example 14

An invoice of RM8,800 that includes a prepaid transportation cost of RM150 dated 31 May
2018 was offered trade discount of 20% and cash discount terms of 15/15, n/30. Find the
amount of payment made on 14 June 2018.
Example 15
On 27 April 2018, a retailer received an invoice, the list price of the goods bought were
as follows: Dried food RM465
Frozen food RM230
Plastic product RM787

The trade discounts given were 16%, 5% and the cash discount terms was 4/10,
2/20, n/30. Find the total payment made on 10 May 2018 and find the total discount
offered.
Example 16
A company received an invoice dated 25 January 2018 for the purchase of an item. The invoice
offered trade discount of 20% and cash discount terms of 3/15, n/30. On 5 February 2018,
the company paid RM7,560 including freight charges of RM100 to settle the invoice.
Find
i) The list price of the item
ii) The amount of cash discount
iii) The total discount
 THE END..

THANK YOU 